Toolkit #4: Develop Your Agent Network

HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS HOWCASE STUDY #4: DEVELOP TO OWN AGENT NETWORKSUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR i FINANCIAL SERVICE PROVIDERS

TOOLKIT #4: DEVELOP OWN AGENT NETWORK

PART 2: CASE STUDIES NBS BANK, MALAWI CEC, CAMEROON MICROCRED, SENEGAL*

By PHB ACADEMY and MICROLEAD CEC Cameroon staff using a mobile banking device Courtesy of Eric Kenkolla

*Microcred is not a MicroLead partner but received support from The MasterCard Foundation

MM4P MOBILE MONEY FOR THE POOR HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

ii ACKNOWLEDGEMENTS

We would like to thank the management and staff of NBS Bank in Malawi, Caisse d’Epargne et de Crédit du Cameroun (CEC) in Cameroon and Microcred in Senegal for their contribution to these case studies. We thank them for their time and for sharing their information, lessons learned and recommendations, to enable other financial service providers to succeed on their digital path. We would also like to thank the team at Women’s World Banking that helped us draw a truthful picture of the efforts by NBS in the area of agency banking.

We would like to thank in particular the following individuals for their time and effort to prepare this series of case studies: Esnat Nchembe and Ntaja Ntandaza from NBS Malawi Eric Kenkolla from CEC Cameroon Mareme Sène and Yoann Guirimand from Microcred Senegal Jennifer McDonald, Alejandra Rios and Meghan Flaherty from Women’s World Banking

AUTHORS

PHB Development: Lisa Chassin and Ruth Thiemele Kadjo United Nations Capital Development Fund − MicroLead: Pamela Eser, Hermann Messan and Ivana Damjanov

REVIEW COMMITTEE

PHB Development: Marie-Sophie Tar and Aurélie Wildt Dagneaux The MasterCard Foundation: Ruth Dueck-Mbeba and Amos Odero

EDITOR

Chela Cea

The views expressed in this publication are those of the author(s) and do not necessarily represent those of the United Nations, including UNCDF, or their Member States. The designations employed and the presentation of material on the map(s) and graph(s) contained in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations or UNCDF concerning the legal status of any country, territory, city or area or its authorities, or concerning the delimitation of its frontiers or boundaries. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

iii TABLE OF CONTENTS

List of tables, figures and map v List of acronyms vi

OVERVIEW OF TOOLKIT 4 1

EXECUTIVE SUMMARY 2

CASE STUDY OF NBS BANK IN MALAWI—JOURNEY AND OBJECTIVES 4

NBS Bank at a glance 4 Objectives of going digital 5 The digital journey 5

CASE STUDY OF NBS BANK IN MALAWI—APPROACH TO IMPLEMENTING DIGITAL FINANCIAL 7 SERVICES

Regulation and partnerships 7 Products and services 8 Distribution channels 12 Internal organization 16 Financials 18

CASE STUDY OF NBS BANK IN MALAWI—ACHIEVEMENTS 20

Fulfilment of objectives for digital finance 20 Adoption and use of digital financial service channel 21 Cost/Benefit analysis 22 Benefits for NBS Bank 24 Benefits for clients 24 Benefits for agents 25 Summary of benefits 25

CASE STUDY OF NBS BANK IN MALAWI— 26 KEY INFLUENCING FACTORS AND LESSONS LEARNED

Analysis of readiness 26 Key influencing factors 29 Challenges experienced and mitigation strategies deployed 30 Lessons learned 33 The way forward for NBS Bank 34 HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF CEC IN CAMEROON—CREATING ITS OWN AGENT NETWORK 35

Digital model in a nutshell 35 iv Objectives for developing its own agent network 35 Channels, tools and technology 35 Digital journey 35 Cost/Benefit analysis 36 Key success factors 36 Challenges and lessons learned 37 Next steps 37

CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK 38

Summary 38 Objectives for the creation of an agent network 38 Services offered and channels used 39 Implementation efforts 40 Model in action 41 Results achieved and cost/benefit analysis 43 Key success factors 44 Challenges and lessons learned 44 Next steps 44 Key figures on Microcred Senegal (April 2017) 45 Results achieved though technology in Senegal (2016) 45

ANNEX I: MALAWIAN CONTEXT 46

About MicroLead 48

About PHB Academy 48

About UNCDF 49

About The MasterCard Foundation 49 HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

v LIST OF TABLES

Table 1: NBS Bank overview 5 Table 2: NBS Bank agent value proposition—Financial and non-financial benefits 12

Table 3: NBS Bank agent recruitment—Example of a recruitment scorecard 14

Table 4: NBS Bank agent monitoring—Example of a daily transaction record 16

Table 5: Summary of internal changes at NBS Bank 17

Table 6: CapEx for the development of Bank Pafupi and Pafupi Savings 18

Table 7: OpEx for the development of Bank Pafupi and Pafupi Savings 19

Table 8: NBS Bank digital finance objectives and achievements 20

Table 9: Pafupi business case scenarios 22

Table 10: Benefits for clients of NBS Bank 25

Table 11: Summary of benefits for NBS Bank, clients and agents 25

Table 12: NBS Bank compliance with recommended prerequisites for Business model #4 27 Table 13: CapEx costs for Microcred Senegal 43

LIST OF FIGURES

Figure I: NBS Bank digital journey 6

Figure II: Deposit at a Bank Pafupi agent 10

Figure III: Withdrawal at a Bank Pafupi agent 10

Figure IV: System architecture of Bank Pafupi 12 Standardization of the selection process by NBS Bank for consistent quality Figure V: 14 of agents Figure VI: Training of trainers’ approach utilized by NBS Bank 15

Figure VII: Agent network growth at NBS Bank 21

Figure VIII: Pafupi Savings Account uptake 21

Figure IX: Pafupi Savings Account deposit growth (MK million) 22 Net profit per year (MK million) without grants and external assistance for Figure X: 23 NBS Bank Figure XI: Cumulative net profit (MK million) with grant funds for NBS Bank 23 Figure XII: Readiness of NBS Bank at time of digital financial service engagement 26

Map 1: NBS Bank branch network 4 HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

vi LIST OF ACRONYMS

ADC alternative delivery channel MFI microfinance institution ANM Agent Network Manager MIS management information system ANO Agent Network Officer MK Malawi kwacha* ATM automated teller machine MNO mobile network operator CapEx capital expenditures OpEx operational expenditures CBS core banking system PIN personal identification number CEC Caisse d’Epargne et de Crédit du Cameroun POS point of sale CFAF CFA franc* RBM Reserve Bank of Malawi FI financial institution SMS short message service GPRS general packet radio services UNCDF United Nations Capital Development Fund IT information technology US$ United States dollar* KPI key performance indicator USSD unstructured supplementary service data KYC know your customer

* Currency symbols: UNCDF uses the currency symbol ‘US$’ for the United States dollar, ‘MK’ for the Malawi kwacha and ‘CFAF’ for the CFA (Communauté financière africaine) franc, which is the legal tender in Cameroon and Senegal (discussed in these case studies) as well in a number of other countries. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

cases of NBS Bank in Malawi and Microcred in Senegal, OVERVIEW OF TOOLKIT 4 which have developed their own network of agents, and highlights the case of Caisse d’Epargne et de Crédit in This toolkit is the fourth in a series of six toolkits aimed at support- Cameroon, which is in the process of implementing its own 1 ing financial service providers to go digital. network of roving and fixed agents.

This toolkit describes the fourth model that a financial institution In this toolkit, the authors make a clear difference between fi- can choose: to develop its own (proprietary) agent network. nancial service providers (FSPs) and financial institutions (FIs; In this model, a financial institution identifies, recruits, trains, banks or non-banks). brands and manages its own network of third-party agents through which to distribute its financial products and services. FIs are a form of FSP. FSPs are broader and cover FIs, mobile The fact that it is the financial institution that handles all of these network operators and payment service providers. agent-related responsibilities is a key difference from Model 3 (Leveraging an existing agent network), in which the digital fi- When the term ‘FI’ is used in this toolkit, the authors refer specifi- nancial service provider (mobile network operator or payment cally to financial institutions and non-bank financial institutions but service provider) recruits, trains and manages the agent network NOT to mobile network operators and payment service providers. and the financial institution leverages it. Another key difference between Models 3 and 4 is that, in Model 3, the agent facilitates While in many cases an FI would offer both agency banking and mobile money operations while, in Model 4, the agent facilitates mobile banking, the authors have assumed for this toolkit that operations directly on a financial institution account. Most often the FI will only build its own agent network and that the in- there is no e-money involved in Model 4. teraction with clients will be over the counter with the agent using a mobile/point-of-sale/web interface for conducting the This toolkit is composed of two documents: transaction on behalf of the FI client. • The document ‘Part 1: Business model description’ describes the business model and recipe for success. International ex- The authors refer to fixed agents in this toolkit most often (as amples from Equity Bank in Kenya and FINCA in the United opposed to roving agents). Republic of Tanzania and Democratic Republic of the Congo illustrate how to successfully implement this model. Mobile banking operations will be covered in ‘Toolkit #5: Create • This document, ‘Part 2: Case studies,’ describes the detailed own mobile banking channel’ and ‘Toolkit #6: Be a provider.’ Clients of CEC Cameroon performing transactions with agent Courtesy of CEC Cameroon HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

EXECUTIVE SUMMARY

NBS Bank (hereafter, just ‘NBS’) in Malawi offers a system (CBS), and the establishment of a sales team and key prolific case study for any financial institution (FI) performance indicators (KPIs). Building capacity to grow its agent network is a daily effort for NBS that focuses on several interested in developing its own agent network: not key axes: uplifting value proposition, careful selection, efficient only does the case reveal the many different steps training, close monitoring and soft liquidity management. and measures that an FI needs to take to integrate agency banking services into its current operations Now, two years after the roll-out, the NBS agent network com- and offerings, but it also underlines how long and prises 315 agents, both individual and corporate, and serves challenging the path to success can be, regardless more than 85,000 customers who have enrolled for the Pafupi Savings product (data as of 31 March 2017). The Pafupi package of how eager or prepared the institution. (Bank Pafupi and Pafupi Savings) can be considered a success for NBS and has contributed greatly in the progress towards fi- NBS was one of the ‘first movers’ in Malawi to embark on the alter- nancial inclusion in Malawi. Going to agents became the pre- native delivery channel (ADC) journey back in 2012. The underlying ferred way to save (compared to keeping money at home or motive was simple and was revealed in a 2008 FinScope study:1 using village savings groups). And, with 86% of Pafupi clients there was huge potential for FIs to include rural and low-income being previously unbanked, NBS clearly deepened its market populations in the formal financial ecosystem of Malawi. presence with a whole new and unsaturated segment, which augurs sustained growth rates for the near future. However, But growing its customer base to include rural unbanked pop- uptake among women and rural2 populations (30% and 34%, ulations did not come easily for this leading commercial bank. respectively)—the original targets of Pafupi—still needs to be Significant adjustment and tailoring was necessary to meet the enhanced in order to meet the original objectives established at needs of these remote, poor customers. Though NBS first pi- project inception (48% and 51%, respectively). NBS is current- loted its agency channel called Bank Pafupi (meaning ‘close by’ ly tackling this issue through the implementation of operational in the local language) in 2012, the Bank did not decide to roll and mind-set changes to develop a culture of field work. Please it out until three years later—in 2015. Faced with operational explore the next several sections to learn more about the jour- challenges, NBS rightfully understood that engaging in a national ney, approach, achievements and lessons learned by NBS. roll-out before fixing existing problems would only hinder client trust and future usage. This publication also briefly shares the experience of Caisse d’Epargne et de Crédit (CEC), a medium-size institution with 50,000 NBS took advantage of this time to surround itself with resource- clients in Cameroon. CEC was one of the first microfinance insti- ful corporate, technical and financial partners and enablers to tutions (MFIs) in Cameroon to develop its own network of agents, fill gaps and plan for the future. With the technical assistance having done so in 2015. The pilot phase just ended, and now CEC of Women’s World Banking and MicroLead, a United Nations is scaling up—already counting 80 roving agents as of the end of Capital Development Fund (UNCDF) programme, NBS refined 2016 and preparing to introduce fixed agents in 2017. CEC also de- the value proposition and addressed technical deficiencies. NBS veloped its own technical platform, using Internet-based technology, worked with its partners to design a specific savings product and equipped agents with smartphones with Bluetooth printers. For that fit the particular channel, the Pafupi Savings Account. now, the transactions available with an agent are account-openings, deposits and withdrawals; bill payments and loan repayments will In order for NBS to implement the agency banking channel, key soon be available. Please refer to the second case study to read operational and management changes were required, such as more about the experience of CEC. the facilitation of training of trainers’ sessions, the development of a mobile platform integrated with the existing core banking

1 Jason Agar, Hiten Savani and Laura Thompson, ‘FinScope Malawi 2008,’ report for FinMark Trust (Lilongwe, Kadale Consultants, April 2009). Available from http:// 2 The definition of ‘rural’ has recently been changed by the Reserve Bank of www.finmark.org.za/wp-content/uploads/2016/08/FS-Malawi-2008-Report.pdf Malawi to include both rural and semi-urban populations. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

Finally, this document presents a third case study: the digi- These three case studies highlight an institution’s point of view 3 tal path followed by Microcred in Senegal to develop its own when developing an agent network. They shed light on the in- agent network. Microcred is not a MicroLead partner, though it tense efforts required—from an operational, managerial and did receive financial support from The MasterCard Foundation. budgetary perspective—to successfully complete such a proj- Microcred is a large microfinance bank (like NBS in Malawi) ect. Building on learnings from these three cases, FIs willing to with ~230,000 clients and ~40 branches and has managed to go down the agency banking path should be aware of the time recruit 520 agents in three years (2014–2017). Microcred also and work that this business model implies. Please refer to Part 1 developed a proprietary technology platform and equipped its of this toolkit for more details on what to expect along the path. agents with biometric devices that they can plug into computers to perform transactions. Microcred Senegal is part of Microcred Holding, and the experience of Microcred Senegal should benefit fellow subsidiaries. Millions have been invest- ed in the new channels and considerable human resources have been devoted. Operations have been deeply impacted and transformed for Microcred to go digital. Lessons learned in terms of searching for the right sustainable business model and staying focused on the core business can benefit other FIs. Please see the third case study to learn more about the experience of Microcred Senegal. CEC Cameroon agent Courtesy of Eric Kenkolla HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

4 CASE STUDY OF NBS BANK IN MALAWI— JOURNEY AND OBJECTIVES

NBS Bank developed Pafupi, meaning ‘close by,’ Map 1: NBS Bank branch network to remove barriers to banking for people in rural areas, especially for women. Pafupi is the Bank’s way of unlocking the huge potential of low-income and unbanked populations.

NBS BANK AT A GLANCE NBS is a leading commercial bank providing a wide range of financial services to individuals, small and medium businesses, large corporations and public institutions. It is ranked fourth among 11 commercial banks in Malawi, with over 448,000 clients. In terms of women and rural clientele, borrowers are 20% women and 31% rural while depositors are 30% women and 50% rural (data as of 31 March 2017).

Founded in 1964 as a building society, it became a full-fledged bank in 2004, following the issuance of a banking licence by theReserve Bank of Malawi (RBM), the national banking regulator. It now holds total capital of US$137 million.

NBS has developed the largest retail footprint in the country with 32 branches (service centres), 65 active automated teller machines (ATMs) and 315 agents in its network, as of 31 March 2017 (see map 1 for its country presence). NBS offers a full suite of products and services including savings accounts, credit products, foreign currency deposit accounts, trade finance products, Visa cards, ATM cards, foreign exchange facilities, and value-added services including bill payments and Internet and short message service (SMS) banking (see table 1 for more details about NBS).

NBS was one the ‘first movers’ in the area of ADCs in Malawi when developing Bank Pafupi (meaning ‘close by’ in the local language) in 2012. NBS developed Pafupi to remove barriers to banking for people in rural areas, especially for women. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

Table 1: NBS Bank overview 5

Regulatory status Banking licence under RBM Length of operations Since 1964 Geographical coverage All three regions in Malawi (Northern, Central and Southern)

Products • NBS offers a comprehensive range of commercial products • NBS has a savings product (Pafupi Savings) especially designed for and offered to low-income and rural people • NBS offers small loans for small and medium enterprise development Number of clients 448,000 (data as of 31 March 2017) Loan portfolio (US$) 53,000,000 (data as of 31 March 2017) Average loan size (US$) ~7000 Number of staff/volunteers 729

OBJECTIVES OF GOING DIGITAL These barriers included the following: The objectives of NBS in setting up an agency banking channel • Physical barriers: It was difficult for people, particularly in ru- was first and foremost to grow its customer base, by developing ral areas, to physically access bank branches, as they were a tailored offer to reach the unbanked segment in Malawi. located dozens of kilometres away. As a 2008 FinScope study revealed, 81% of the Malawian popu- • Psychological barriers: People with no access to banking lation was unbanked at the time.3 These results made significant services were convinced that the banking sector was not noise in the Malawian financial sector, uncovering great potential meant for them. This feeling that ‘banking is for the elite’ for financial actors totap into the low-income segment. In- was strongly linked to economic and educational levels, as deed, two major recommendations that came out of the study many of these people were nevertheless qualified to ac- were these: cess the service (in terms of financial requirements). • Engage banks in designing more suitable savings products: Malawi was described as a nation of savers, with people most- By designing a tailored offer to reach the unbanked segment in Ma- ly saving at home rather than at the bank, suggesting there was lawi, NBS intended to double its customer base in four years from plenty of unmet demand for accessible savings products. project inception. • Encourage banks to seek out these economically active but unbanked people, based on high levels of informal product usage. THE DIGITAL JOURNEY NBS took the lead in exploring this opportunity, identifying differ- As the saying goes, Rome was not built in a day. Coherent agency ent profiles with potential—such as low-income entrepreneurs, and mobile banking solutions specific to NBS took more than four rural subsistence farmers and cooperative farmers—and con- years to take shape, develop and implement. ducting in-depth focus groups and interviews. NBS started its journey towards digitization in 2011. At the time, the However, it was clear to NBS that it could not just downscale objective was to develop an agency banking network to increase its regular offering but rather had to finda custom way to ad- the footprint of NBS (points of representation) to be able to reach out dress specific needs of the unbanked, especially women to rural customers who had to travel long distances to access exist- and rural populations. Consumer insights from a Women’s ing branches. In the quest to serve these rural populations, the agent World Banking study of the barriers to reaching these seg- network was considered a judicious approach, substituting brick-and- ments had strong implications for the design of the solution.4 mortar branches that would not have been financially viable.

3 In 2008, 19% of Malawians were using banking products, 26% of Malawians The first step taken by NBS was to learn from a more developed were using other formal and informal services and 55% of adults were managing their lives without using any kind of financial product (formal or informal). Source: market in this area. A team of senior managers went on an ex- Agar, Savani and Thompson, ‘FinScope Malawi 2008.’ ploratory trip to Kenya (hosted by KCB) to better understand the 4 Women’s World Bank, ‘Pafupi Pilot Assessment: Road Map to Profitability’ (New York, May 2015). ins and outs of agency banking there. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

6 NBS then needed to obtain approval from RBM. At the time, RBM While the agency banking channel was still in pilot phase, NBS con- was also getting familiar with agency banking and was on the verge ducted a pilot for Pafupi Savings—the savings product offered of drafting guidelines on how to implement the business model in through the channel—in seven branches for a period of eight months Malawi. These guidelines were published in early 2012,5 just before (from October 2014 to June 2015) in order to test the product, oper- approval for NBS was granted. ating model and marketing strategies. This pilot received high ratings from customers. The product reached its target among low-income With regulatory approval in hand, NBS launched a pilot for Bank customers, where the value proposition resonated strongly. Pafupi (the agent network) in 2012 with six agents able to facilitate The financial transactions (conducting cash-in and cash-out, checking national roll-out of the agent network took place in April after balances and obtaining mini-statements). As the pilot developed, a 2015 and of Pafupi Savings in September of the same year, NBS reviewed the product’s features to make sure they fit the partic- number of challenges arose (human-resource and system related), ular channel.6 NBS recruited 29 sales agents called which hindered further development of the ADC project. The scope Bwenzi La Pafu- (meaning ‘close friend’ in the local language) who were in charge of the pilot was reduced to one sole region (Southern) to more specif- pi of selling the savings product (i.e., recruiting and registering clients) ically understand how these human-resource and system challenges in the field. In addition, NBS informed and trained all service centres could be addressed. around the country about the channel and the product. To move forward, NBS entered into a partnership with Women’s While these two components of the ADC project were growing World Banking in 2013. On the one hand, Women’s World Banking strong, NBS decided in 2016 to enable provided technical assistance to address the issues faced with the account-opening of Pafupi . NBS piloted it with agency channel. On the other hand, the two organizations worked Savings at the Bank Pafupi agent’s location 12 agents from September 2016 to April 2017, and the Bank is now together to develop a savings product that could fit the specificities rolling it out nationally (NBS envisions engaging 50 more Bank Pafupi of rural populations, especially women. agents in account-opening of Pafupi Savings by the end of the sec- In-depth customer research was conducted to inform the develop- ond quarter of 2017). As for the network of Bank Pafupi agents over- ment of the savings product, and the concept was shaped in 2014. Key all, the number of agents is growing weekly across the country, questions for the project team were how unbanked rural women were now reaching 315. currently saving and what they would expect from a bank like NBS. The market study gave NBS a valuable foundation to understand how Figure I summarizes the digital journey taken by NBS. to enable women to transact nearby through agents in fixed locations.

Figure I: NBS Bank digital journey

In-depth customer survey completed September Partnership with Pafupi Savings Women’s World 22 October Accounts rolled Banking launched First Pafupi out nationally April Exploratory trip to to provide Savings Account Account-opening Kenya completed Early 2012 technical opened April at Bank Pafupi to understand the Approval received assistance on Bank Pafupi agent locations speciﬁcities of the from RBM to agency banking Pafupi Savings (agent network) rolled out agency banking implement and Pafupi concept rolled out nationally in a business agency banking Savings developed nationally phased approach

2011 2012 2013 2014 2015 2016 2017

2012–2015 Sep.2016–Apr.2017 Oct.2014– Jun.2015

Bank Pafupi Account-opening (agency banking) Pafupi Savings at Bank Pafupi pilot conducted Account pilot agent locations conducted pilot conducted

5 Malawi, Financial Services Act (Act No. 26 of 2010) Financial Services (Agency 6 This topic will be detailed in the section on Key influencing factors and lessons learned, Banking) Regulations, 2012, of 30 November 2012. in which the challenges experienced and the mitigation strategies deployed are discussed. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF NBS BANK IN MALAWI— 7 APPROACH TO IMPLEMENTING DIGITAL FINANCIAL SERVICES

REGULATION AND PARTNERSHIPS Beyond these two institutional partners, NBS liaised with corporate partners that have a potentially large footprint through nu- Partnerships merous outlets that NBS can use to distribute its products. The first partnership NBS established, in 2012, was with the Malawi In order to develop its agency banking solution, Posts Corporation, which counts 171 outlets across the country. NBS received valuable support from two expert NBS has since engaged with two MFIs and a chain store, which organizations: Women’s World Banking and the has 90 shops across the country, and is in discussion with a UNCDF programme MicroLead. money remittance organization.7

Women’s World Banking provided three years of on-the- Regulation ground technical guidance for developing the agency channel. Although the agency banking business model does not re- Through its onsite Resident Advisor and team of consultants, quire specific licensing authorization from the regulator (as Women’s World Banking supported NBS on a large scope of seen in ‘Part 1: Business model description’ of this tool- activities ranging from research, product concept development, kit), NBS needed to receive approval from RBM to pur- business casing, pilot assessment, and staff training for both sue these activities. RBM specifically requested to re- Bank Pafupi and Pafupi Savings. Women’s World Banking pro- ceive regular information on the agent network, especially vided assistance in many steps of the process, in particular with regarding the number of agents recruited and their location.8 the following:

• Understanding demand in rural areas, with a special focus on women

• Organizing an exposure visit to Kenya for the NBS management team

• Developing the Pafupi Savings product concept

• Setting up the agency channel’s teams and processes

• More recently, helping establish the new commission structure to offer a higher value proposition to agents

MicroLead has been pushing for greater access to savings products in rural areas in many African countries and saw a great opportunity to achieve its mission and objectives in Malawi by partnering with NBS. Support from MicroLead mostly consisted of funding to enable the development of the solution. 7 NBS does not have partnerships with mobile network operators (MNOs) with regard to agency banking—NBS does not use the agent networks of the MNOs, but it is in agreement to enable push-and-pull transactions from the bank account to the mobile wallet. 8 This information is provided in quarterly reporting; it is part of a comprehensive report (covering most of the operational activities of NBS) that is submitted to RBM every quarter. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

8 PRODUCTS AND SERVICES Bank Pafupi Pafupi Savings Account Bwenzi La Pafupi sales team

The Pafupi Savings Account is a savings account that The sales team of 86 Bwenzi La Pafupi has been working hand-in-hand with the agents to increase Pafupi Savings uptake targets low-income individuals—particularly women and usage (data as of 31 March 2017). and those living in rural areas—with a vision to save. It gives customers Mtima Myaa (meaning ‘peace of Bwenzi La Pafupi are typically field staff affiliated with the ser- mind’ in the local language) because it is close to vice centres. A typical day of a Bwenzi La Pafupi team member them, helping them save and grow their money. can be described as follows:

• In the morning, go to the service centre to take a pile of Characteristics starter packs and enquire about the specific area assigned for the day. • It is close to you: Customers have easy access through small shops near where they live. • During the day, explore the assigned area and meet and greet potential customers. • No amount is too small: Customers can save any amount starting at MK 200 (US$0.28).9 • In the evening, go back to the service centre to complete reconciliation (deposit the money received against the num- • It is affordable: There is no monthly fee and the minimum ber of accounts opened) and return remaining starter packs. balance is as low as MK 500 (US$0.69), in order to be accessible to target customers.

• It is smart: Money grows because it earns interest.

Account-opening

The account is usually opened via mobile phone and through direct marketing (a sales team on the ground to recruit clients); however, agents are now trained and allowed to perform client registration. To open an account, the sales team or the agent cap- tures client information through a mobile application and proceeds to registration directly on the mobile phone.10

Identification requirements are kept to a minimum, with any val- id identification being accepted (e.g., voter registration card, letter Client enrolment by Bwenzi La Pafupi staff Banking World Courtesy of Women’s from a District Commissioner, religious leader or traditional chief). Cli- The Bwenzi La Pafupi sales team is to be phased out in Au- ent data is instantly transmitted to the Pafupi Management System gust 2017. Thirty of them (the higher performers) will remain (especially created for that purpose) and to the CBS. The account is as Agent Network Officers (ANOs). Sales efforts previously automatically activated. Once the administrative procedures are fi- handled by Bwenzi La Pafupi will be taken over by the agent nalized and the account-opening fees of MK 1,100 (US$1.51) and the network and the ANOs. minimum balance of MK 500 (US$0.69) are paid, the client receives a starter pack with his/her account number, a debit card and a personal identification number (PIN). It takes no more than 10 minutes to get the Pafupi Savings Account opened. Once the process is completed, it can be used anywhere: at agents, service centres and ATMs (as it grants access to an ATM card).

9 Conversion rate: MK 1 = US$0.00137556 (Source: www.xe.com, 19 May 2017). Note: This rate is used throughout this case study when United States dollar equivalents are provided for Malawi kwacha. 10 Agents not yet equipped with a mobile phone need to fill out a physical application form to be sent to the service centre. When the agent reaches a sufficient number of applications, he/she sends them for processing at a service centre. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

9 Client transacting with NBS Bank agent in Malawi Banking World Courtesy of Women’s

Agent network As of 31 March 2017, the agent network is composed of 315 The agent network is branded Bank Pafupi. NBS partners with vari- agents (with approximatively 51% urban and 49% rural and ous businesspeople in different locations who offer financial services semi-urban), spread across all three regions of Malawi (Northern, on behalf of NBS from their agent float accounts. These agents stay Central and Southern). Over the long run, the objective of NBS in their shop all day, performing banking services in parallel with their is less to have many agents than to have quality agents. NBS is usual business transactions (e.g., selling soap, bread, drinks). aiming to close 2017 by contracting 400 agents. But while NBS works to reach the 400-agent threshold, it will continue to focus Banking services offered through Bank Pafupi are basic digital on managing and monitoring quality of its agents. The goal of financial service transactions, such as these: NBS is to achieve a rate of 80% active agents at 30 days, from the current 49% active agents at 90 days. • Deposits (see figure II for the process)

• Withdrawals (see figure III for the process) Opening of Pafupi Savings Account at the agent’s location • Account information From September 2016 to April 2017, NBS piloted account-opening • Customer service (i.e., answering client enquiries) of the Pafupi Savings Account directly at the agent’s location • Pafupi Savings account-opening with 12 agents. Starting in April 2017, NBS began rolling out this feature across the country using a phased approach (i.e., starting with agents who have a high school education, high transaction To ensure security of transactions at the agent’s location, all volumes and important business activity, before progressively transactions are authorized using a PIN code to be entered by extending it to all agents). the customer. In addition, for each transaction performed, the customer is given a receipt from the point of sale or is sent a text The major advantage of account-opening at the agent’s loca- message if the transaction is phone-initiated. tion is that agents are able to conduct better follow-up on prospective clients: many clients need time to think before signing Agents invest their own funds into the agency banking business. up for the product. While the Bwenzi La Pafupi team can have Because it is important that their funds and devices be protected, difficulty (re)locating prospective clients they meet, agents op- NBS provides appropriate training to develop awareness of how to erate at fixed locations near potential clients and see them sev- care for the machines and keep them safe as their own equipment. eral times per week as they come into their shop to buy their day-to-day groceries. Agents are in a good position to remind To avoid fraud and reduce the risk of robbery, NBS has fixed prospective clients to consider signing up or to bring missing transaction limits: documents to complete the application. Another advantage that • Withdrawal limit: MK 15,000 (US$21) was revealed from the pilot is that enrolments by agents have a significantly higher percentage of women clients, compared to • Deposit limit: MK 30,000 (US$41) enrolments by the Bwenzi La Pafupi sales team. The 12 agents However, NBS has recently decided to raise these limits to MK in the account-opening pilot opened 53% of the accounts of 40,000 (US$55) for both transaction types due to inflation and women customers (data as of 31 March 2017). some customers’ requests for a higher transaction range.

Figure II: Deposit at a Bank Pafupi agent HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

10 Figure II: Deposit at a Bank Pafupi agent

POS DEPOSIT AT AGENT MOBILE AGENT INITIATED AGENT INITIATED

Agent inputs the amount to deposit Client tells the agent how much he/she 1 1 in the POS would like to deposit

Agent starts the process on his/her 2 Client gives his/her card to the agent 2 phone (from own float account)

3 Agent inserts the card in the POS 3 Client hands the cash to the agent

Client inputs his/her ATM PIN to Client receives an SMS with the 4 4 authorize the transaction amount deposited and the agent ID

DEPOSIT SLIP SMS

Figure III: Withdrawal at a Bank Pafupi agent

POS WITHDRAWAL AT AGENT MOBILE AGENT INITIATED CLIENT INITIATED

Agent inputs the amount to 1 1 Client dials #322# withdraw in the POS

Client selects ‘Agency Banking’ in the 2 Client gives his/her card to the agent 2 menu, and then ‘Withdrawal’

Client enters how much he/she would 3 Agent inserts the card in the POS 3 like to withdraw

Client inputs his/her ATM PIN to 4 4 Client dials his/her PIN authorize the transaction

5 Agent hands the cash to the client 5 Client dials the agent ID

Agent receives an SMS with the client 6 WITHDRAWAL SLIP number and amount to withdraw

Client and agent both receive a text 7 “Transaction successful” Agent hands the cash to the client SMS HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

Technology solutions NBS intends to progressively shift towards phone-based 11 transactions. As a result, NBS needs to aggressively market Devices used for Bank Pafupi EazyMobile to increase the number of registrations. Unfortu- nately, the EazyMobile monthly subscription fee of MK 500 : All agents are provided with Basic mobile phones (US$0.69) is deterring some clients from registering. a basic phone connected to the mobile banking platform, branded EazyMobile, for phone-based transactions. These phones cost around US$30 each. Technology platforms EazyMobile, the mobile banking platform Smartphones: Smartphones are also connected to the mobile banking platform EazyMobile for NBS developed a stand-alone system (i.e., EazyMobile) to en- phone-based transactions. However, they can also able transactions to happen in real time, working on an un- perform client registration and account-opening ma- structured supplementary service data (USSD) platform. Trans- nipulations since they have the account-opening ap- actions are performed from EazyMobile, which automatically plication. For now, these phones are only provided transfers the information to the CBS. to agents that are doing account-opening. Eventu- ally, when NBS completes the phased national roll- Customers can register either by going to any NBS service cen- out of account-opening at the agent’s location, these tre or by self-registering by dialling *322*99#. Once registered, phones will be distributed to all agents. They cost customers can transact on their account but also use their ac- less than US$150 each. count to access value-added services by dialling *322#. For clients to access services through basic or smartphones, they first need to register on EazyMobile. Pafupi Mobile application Clients then have access to the whole range of mobile banking services (e.g., they can pay for televi- Besides EazyMobile, which is a purely transactional USSD plat- sion and utilities, buy airtime and make transfers form, NBS also created an Android Pafupi Mobile application for from one account to another account). Mobile phone account-opening by agents. When opening an account, Pafupi transactions amount to approximately 30% of total customers are automatically registered for EazyMobile Lite, a fea- Bank Pafupi transactions. ture which allows them to access the Bank Pafupi menu on their own phone for withdrawals and deposits only (not the full package Normal point-of-sale (POS) devices: Since most of services) while at the agent’s location. If they want to access a people are not registered on the mobile banking broader range of services (utility payments, phone transfers, etc.), platform EazyMobile, they can use their ATM card they have to register by themselves by dialling *322*99# and are at the agent’s location to make a card-based trans- charged MK 500 (US$0.69) at the end of the month. action (provided the agent has a POS device, which is not always the case). POS devices cost US$500– US$600 each. Account management system

Bank Pafupi now has 160,000 customers registered on the Apart from the CBS (Temenos T24), EazyMobile interacts (for EazyMobile platform (among 448,000 total NBS customers). account-opening only) with an internally created account man- Agents perform a total of 23,000 transactions per month, of agement system, called Pafupi Management System. This which 70% are made via a POS device and 30% via a mobile system was developed to create the accounts and the starter phone (data as of 31 March 2017). packs, assigning starter packs to a sales person/agent, and to process the information received from the smartphone (Pafupi Mobile phones are essentially used by agents in rural areas, Mobile application) and transfer it to the CBS. while a combination of mobile phones and POS devices (where connectivity is available) are used by agents in urban areas. All technology solutions (except T24) were developed in house. See figure IV for a picture of how these solutions interact. As demonstrated by the respective costs above, the mobile solution is much more cost effective than the POS. Hence, HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

12 Figure IV: System architecture of Bank Pafupi

CSTOER DEPOSIT

ACCONT CSTOER CREATION ITDRAAL PAFPI PAFPI Account-opening information Synchronization IAE OILE ANAEENT CAPTRIN APP SSTE

USSD Open request/response Financial Cash-in/Cash-out EazyMobile Service CORE ANKIN Starter pack message SSTE CUSTOMER AGENT

Legend: Customer registration activities Regular agency banking operations (after customer registration)

Smartphone application Agent value proposition

EazySmart is the matching application that allows access to Ea- The agent value proposition includes financial returns (fixed com- zyMobile using any smartphone. As of 31 March 2017, this ap- missions earned with deposits and withdrawals) and non-financial plication was still under development. benefits (see table 2 for more specifics on the value proposition).

Table 2: NBS Bank agent value proposition—Financial and DISTRIBUTION CHANNELS non-financial benefits

Agent network management FINANCIAL RETURNS The NBS agent network is composed of both indi- • Fixed commission of MK 87.5 (US$0.12) for withdrawals vidual agents and corporate partners’ agents/outlets. • Fixed commission of MK 37.5 US$0.05) for deposits In the case of the corporate agents/outlets, network

management falls under the supervision of the cor- NON-FINANCIAL RETURNS porate partner. Supervision on the side of NBS consists of liaising with the partner’s head office and • Association with the NBS Bank brand conducting occasional visits to make sure everything • Differentiation from competitors in the area is running smoothly. • Increased visibility • Improved foot traffic and cross-selling opportunities However, this section is focused on how NBS manages its own individual agents. NBS is currently working on revising this value proposition as many agents were found to be unsatisfied with the offer. Agents tend When building capacity to grow its own agent network, NBS to value financial returns while neglecting indirect financial bene- focused on several key aspects: fits. For that reason, the financial revenue structure as described • Agent value proposition in table 2 was not considered rewarding enough by many agents, • Agent selection who ended up favouring their usual business affairs over banking services. In addition, when comparing the commission structure of • Agent training NBS to the ones implemented by other banks, NBS was not com- • Agent monitoring petitive. The distorted agent value proposition was a considerable • Liquidity management challenge for NBS, but it is now in the process of being improved. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

13 Client performing transaction on agent phone - NBS Bank Malawi Courtesy of Women’s World Banking

Agent selection and recruitment Other selection criteria were established by NBS itself. For a NBS formed a team of five centrally located Agent Network Man- businessperson to be considered as a potential agent, he/she agers (ANMs), in charge of selecting and recruiting agents. The has to demonstrate compliance with these NBS policies: goal is to expand and restructure the team to 30 members, largely • Potential agent has a proper business in place that would based at the various service centres, when the Bwenzi La Pafupi not compromise the image of NBS (reputation implications). team is phased out in August 2017. Each ANM is responsible for an assigned area, and besides selecting and recruiting agents there, • Potential agent is well located (agent shop must be visible). each ANM is also in charge of agents’ training and monitoring. • Potential agent maintains the interior of his/her shop well and has sufficient stock (agent shop must be well organized and proper- When selecting and recruiting agents, ANMs have to ensure cer- ly merchandised; in other words, the potential agent needs to tain criteria are met. Some of these criteria/requirements were demonstrate that his/her business is healthy and serious). provided by regulatory guidelines from RBM, such as these: • Potential agent keeps proper records of all of his/her transactions. • Potential agent must be in a proper shop (no mobile agents). To ensure consistent quality of agents, NBS set up a standard- • Potential agent needs proper identification documents ized selection process. Selection first consists of a market scan, (business registration)/has to be known by the regulator as or a pre-scoping, to select the five best potential people in an a business operator. area (see figure V), with support from recruitment scorecards for cross-verification purposes (see table 3). Once the ANM has • Potential agent’s business has to meet anti-money launder- scored the potential agents, he/she can classify them from 1 to ing requirements. 5 and approach them. • Potential agent should pursue adequate know-your-customer (KYC) requirements. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

14 Figure V: Standardization of the selection process by NBS Bank for consistent quality of agents

PRE-SCOPING CROSS-VERIFYING SHORTLISTING PITCHING CONTRACTING

Table 3: NBS Bank agent recruitment—Example of a recruitment scorecard

AGENT SCORECARD

Agent name (fill in agent name)

Parameters 1 2 3 4 5 Score Location of Any other location Close to Near 4 or 5 Highway/ Trading area/ 1 shop branch bank Main road Market place 4

Type of Any other store Boutique Second-hand Pharmacy, Grocery shop, business or similar clothes store, mobile phone supermarket, 2 high‑value plastic sales shop stationery 3 store shop store or any similar store Interior of Interior poorly Interior poorly Average stock Interior well Interior well shop and maintained with maintained but maintained maintained 3 stock poor stock average stock but poor stock and well 5 stocked

Cash value < 100 100–200 At least 200 200–500 500–800 of each or 4 transaction 4 > 1000 (MK)

TOTAL 16 (fill in ANM Other information: Visited by name) Time

Date

Location

Agent training The NBS training programme for the national roll-out of Pafupi To ensure quality of service delivery, all agents are trained by Savings has been designed to follow a training of trainers’ ap- NBS on how to use the digital tools provided (either a basic proach, as illustrated in figure VI. phone or smartphone and, if applicable, a POS device) and to handle customers’ requests in a courteous and efficient manner. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

Figure VI: Training of trainers’ approach utilized by NBS Bank 15

Topics covered: A NS A NBS Bank Alternate R AN A S Channels team trained by Women’s World A Banking during the E NS initial roll-out phase F

Topics covered: NBS Bank branch A NS I staff, including Agent T E POS Supervisors, trained by the Alternate N Channels team A F

Topics covered: NS NS NS NS Agents trained by NS A Agent Supervisors C NS C

To complete their training, NBS originally provided all agents • The Agents Handbook is a comprehensive manual aimed with two crucial tools: at guiding agents in providing daily agency services. Con- tents include an introduction to NBS and agency banking, • The Agency Banking Manual is a short illustrative guide customer service guidelines (regarding customer service to help agents manipulate the transactional mobile phones culture and principles, do’s and don’ts and dress code), for the Bank Pafupi operations. It provides guidance on how complaint management, risk management, agency banking to log in, handle cash deposits, view last transactions, re- operations (transaction documentation, transaction man- set the PIN and perform cash withdrawals. The Manual not agement and daily procedures), bookkeeping procedures, only provides written instructions on the processes but also POS device operations (how to set up, navigate and trans- screenshots for ease of understanding. act with the device) and finally NBS contact points. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

16 Today, NBS still provides the Agency Banking Manual but no To NBS, face-to-face interaction and relationship-building with the longer offers the Handbook. It was a heavy and costly guide agents represent a very important component of agent monitoring. that was not being used by the agents. The focus has shifted to That is why ANOs not only spend time to work with agents on solv- intensified monitoring andon-the-job coaching to help agents ing problems but also to hold simple meet-and-greets with them. overcome any issues they may encounter. NBS established the following KPIs to support the monitoring and evaluation of agents’ performance:

Agent monitoring • Deposit mobilization (how much NBS is getting through the agency channel) ANMs are also in charge of monitoring agents, relying on both onsite visits (weekly field visits)11 and off-site supervision through daily • Average number of transactions per agent per day transaction records (see table 4 for an example) and liquidity/float bal- • Total number of agents (expansion of the agency channel) ance reports. ANMs perform ad-hoc visits as well, using registered • Other qualitative KPIs such as customer service customer complaints to decide which agents to mystery shop.

Table 4: NBS Bank agent monitoring—Example of a daily transaction record

Daily Bank Pafupi transaction summary From 29-Jan-15 to 29-Jan-15 Deposit Withdrawal Deposit Withdrawal Agent account Agent name amount (MK) amount (MK) transactions transactions 00XXXXX0017 Big Tafa 0 60 225 0 12 00XXXXX0015 Chipoka 0 17 000 0 2 00XXXXX0005 Dauda 1 000 30 000 1 3 00XXXXX0020 E-Kwacha 38 38 1 1 00XXXXX0011 E-Kwacha Chilomoni 7 000 3 000 1 1

Liquidity management Each agent has access to a service where he/she can deposit/withdraw the money. Agents can either (1) visit the service What NBS recommends to its agents is to have a fair split of centre to deposit cash in the case of no e-value, or withdraw in e-money (money in the float account) and cash. For example, if the case of no cash; or (2) in partnership with a mobile network an agent decides to start the agency business with MK 100,000 operator (MNO), push or pull funds from bank account to wallet. (US$138), he/she would have MK 50,000 (US$69) in the float There are no super dealers yet. account and MK 50,000 in cash for withdrawal. The amount de- pends on each agent’s capacity. As far as account-opening is concerned, for the 12 agents who were part of the pilot, they are given a certain number of starter If a client wants to withdraw MK 10,000 (US$14), the agent takes packs in stock that they have to sell. The agent pays for these packs that amount out of his/her MK 50,000 (US$69) in cash. The phone through a settlement account; every time an account is activated, or POS device (connected to the system) debits the client’s ac- it deducts MK 1,100 (US$2) from the settlement/agent account. count and credits the agent’s float account. The agent’s cash has decreased but his/her e-money in the float account has increased.

The reverse happens in the case of a deposit: the agent receives INTERNAL ORGANIZATION some cash, and the system debits the agent’s float account and credits the client’s bank account. For NBS to implement the agency banking channel, key operation and management changes were required: in particular, implementing training sessions at all levels, developing and integrating a mobile platform with the existing CBS, setting up a sales team and KPIs for the channel, and facilitating col- laboration across all bank departments (see table 5 11 The goal of the agency banking team is to visit each agent at least once per month. ANMs make field visits each week, but they do not visit each agent every week. for a breakdown of the changes). HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

Table 5: Summary of internal changes at NBS Bank

Area Changes

Organizational 17 structure • Agent Network Managers: Hiring and training of five ANMs in charge of selecting, recruiting, training (from initial training and on-the-job coaching to refresher training), monitoring and managing agents;ANMs will expand to a team of 30, adopt a more field-based structure in August 2017 (as the Bwenzi La Pafupi sales team is phased out), and also open accounts in village groups • Service Centre Managers: Making Service Centre Managers responsible to the agent network and Alternate Channels Manager and the Products Manager • Bwenzi La Pafupi sales team: Establishment and training of a team of 86 agents (29 during pilot phase) on account features and benefits, account processes, Bank Pafupi, sales and promotional techniques • Alternate Channels team at head office: Hiring one Alternate Channels Officer, who looks after efforts by ANMs to recruit, train and monitor agents and also assists in training of newly recruited ANMs

Internal processes • Formulation of KPIs and sales targets for sales agents and for branches (e.g., sales agents are re- and standards sponsible for opening 50 accounts per week, of which 30 need to be women customers) • Introduction of branch scorecards to count new Pafupi customers and deposit volumes, so channel could become part of core business • Creation of new processes, including in-field account-opening for instance • Revision of process maps with new procedures

Training • Design of training toolkit • Facilitation of training-of-trainers’ sessions with product, agency banking and training teams to allow replication of training inputs throughout NBS • Training of all staff (at head office and branches, with field sale staff and agents) in various areas, such as acquiring and educating customers, communicating with women customers, conducting transactions and managing sales teams to achieve targets

Internal/Cross-team • Establishment of high-level Pafupi working group, in charge of issue resolution, with heads of departments coordination from across NBS • Integration of ICT team as part of the core product team so ICT team understands the IT changes required and meets shared objectivesa

ICTa • Internal development of the following: oo Mobile banking platform oo Mobile application oo Account management system • System adjustment of CBS to communicate efficiently with the new technology platforms and workflow • Equipment of sales team and agents with required tools (phones, POS devices)

Marketing • Development of marketing techniques: oo Production of stockpile of starter packs with cards/PINs oo Creation of logo and tagline for Pafupi oo Involvement of key influencers (village leaders) to raise awareness oo Advertisement on community radio oo Organization of market stands oo Design of brochures and posters oo Design of agent signage oo Design of referral cards a ICT, information and communication technology 18 been the main expenses incurred so far. been themainexpensesincurredsofar. ing for staff salaries and marketing materials have pay- and equipment the Buying NBS. for costly venture a been has network agent the up Setting CapEx andOpEx FINANCIALS Table 6:CapExforthedevelopmentofBankPafupiandSavings Other Development ofin-housetechnology customer oncost‑recoverybasis Starter packs(cards,PINs,carriers,referralcards)—charged to Additional resourcesforproductmanagementteam POS devicesforstrategicagents Mobile phonesforEazyMobileagents Phones forBwenziLaPafupi Agent performing transaction on his mobile phone at NBS Bank Malawi Courtesy of Women’s World Banking XXX Courtesy of Details Pafupi Savingsroll-out. and Pafupi Bank the of ‘OpEx’) (i.e., expenditures operational and ‘CapEx’) (i.e., expenditures capital of list the display 7 and 6 Tables Total amountfrom 2012 to2016(MK) 99 128571 A SERIESOFTOOLKITSFORFINANCIALSERVICE PROVIDERS CASE STUDY#4:DEVELOPOWNAGENTNETWORK HOW TOSUCCEEDINYOURDIGITALJOURNEY: Total amountfrom 2012 to2016(US$) 136 357 HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

Table 7: OpEx for the development of Bank Pafupi and Pafupi Savings 19

Total amount from Total amount from Cost category Details 2012 to 2016 (MK) 2012 to 2016 (US$)

Bwenzi La Pafupi salaries and incentives

ANO salaries Human resources 95 419 321 131 255 Alternate Channel Support Officer at head office

Other

Above-the-line marketing: radio

Below-the-line marketing: market activations

Promotional materials

Sales team branding (T-shirts, bags, pouches) Marketing 151 639 405 208 589 Agent materials

Marketing (Bank Pafupi signage and marketing materials)

Other

Training and recruitment

Key influencers, other travel Training and travels 20 115 325 27 670 Travels costs for agency banking staff

Other

The total budget for the Bank Pafupi and Pafupi Savings nation- Yet, NBS is hoping that, over time, these expenditures will general roll-out amounts to MK 366,302,622 (US$503,871), of which ate considerable savings, as the cost of serving a client at a service MK 67,500,000 (US$92,850) was funded by UNCDF-MicroLead. centre is indeed higher than the cost incurred at an agent’s location. NBS has not reached breakeven yet for this project. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

20 CASE STUDY OF NBS BANK IN MALAWI— ACHIEVEMENTS

The Pafupi package represents a success for NBS FULFILMENT OF OBJECTIVES FOR Bank as well as a contributor to significant progress DIGITAL FINANCE towards financial inclusion in Malawi. However, up- As a result of the Pafupi project, NBS gained new customer take among women and rural populations—the orig- insights, developed new products and delivery channels and inal targets—still requires improvement. tapped into a new market (see table 8).

Table 8: NBS Bank digital finance objectives and achievements

Original objective NBS Bank achievements

Reach the unbanked The designed solution is very attractive for rural people: after the pilot, it was found that 86% of segment the 85,594 total Pafupi clients were previously unbanked => Contributing to financial inclusion.

The Pafupi package is a success for NBS, answering specific market needs. Clients from the pilot phase reported reallocating savings from other places (formal and informal), citing the benefits of Pafupi Savings compared to other savings mechanisms Find a custom way to => Pafupi is the new preferred way to save => Changing behaviours. address the unbanked’s By developing Bank Pafupi and Pafupi Savings, NBS developed a tailored solution that specific needs does the following: • Brings the bank to the community • Offers convenience and security • Helps clients save

NBS managed to raise the level of awareness about financial services among women and within rural populations, and made great progress towards demystifying banks for the poor. Increase the number of However, the percentage of Pafupi Savings Accounts that are held by women and rural women with a savings clients is still low (data as of 31 March 2017): account • Women 30% • Rural 34%

Legend: Green: target reached; Orange: target partially reached

PAFUPI RESULTS (DATA AS OF 31 MARCH 2017)

• Pafupi accounts: 85,594 • Total deposits in Pafupi accounts: MK 725,500,000 (US$996,143) • Average account balance: MK 8,476 (US$12) • Percentage women: 30% | Percentage rural/semi-urban: 34% • Branches: 32 | Bank Pafupi agents: 315 • Bwenzi La Pafupi sales team members: 86 HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK CASE STUDY #4: DEVELOP OWN AGENT NETWORK

ADOPTION AND USE OF DIGITAL FINANCIAL A growing number of transactions 21 SERVICE CHANNEL At the beginning of the project, NBS was recording just over one Figures VII–IX capture adoption and usage of the NBS agent net- transaction per day per agent. This number picked up to nine in 2016, work and products. but it decreased to six transactions per day per agent in Q1 2017 as new agent recruits were added to the team. However, some agents A growing agent network are out-performing others—for example, those who have been operating for a long time or those with a prolific, well-located business are The concept was well received by agents. In addition to a new reaching more than 100 transactions per day. source of revenues, agents look for other benefits such as increased traffic in their shop. As NBS is advertising aggressively It is anticipated that when the agent network stabilizes, the av- to induce demand, account-opening at the agent’s location is erage will improve due to awareness levels. Opening more ac- also creating demand for transactions over time. counts will also be a way to increase the number of daily transactions (deposits and withdrawals). The objective is to reach an NBS has 315 agents (305 at the end of 2016) and is attracting more average of 15 transactions per day per agent. and more agents every day. NBS intends to close 2017 by increasing this number to 400.

Figure VII: Agent network growth at NBS Bank

350 305 300

250 202 200

150

100 60

0 2014 2015 2016

A growing number of clients

Figure VIII: Pafupi Savings Account uptake

90 000

80 000 76 803

70 000

60 000

50 000

40 000 31 527 30 000

20 000

10 000 1 530 0 2014 2015 2016 HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

22 Increasing savings

Figure IX: Pafupi Savings Account deposit growth (MK million)

70 61.68 60

18.80 20

10 7.15

2014 2015 2016

COST/BENEFIT ANALYSIS

When NBS was just starting to implement its agent network, four different scenarios for Bank Pafupi and Pafupi Savings, as the cost/benefit analysis of Pafupi was based on projections. shown in table 9. The first version of the business model, built in 2014, envisioned

Table 9: Pafupi business case scenarios

Scenario Assumptions

• Average account balance of MK 4,200 (US$6), with increase to MK 8,400 (US$12) by end of period Base case – Current trend • Three new accounts opened per day by sales team • Fifty percent of accounts with balances > MK 200 (US$0.27)

• Average account balance of MK 5,200 (US$7), with increase to MK 10,500 (US$14) Scenario 1 (S1) – Higher by end of period balances • No change to other assumptions

Scenario 2 (S2) – S1 and • Five new accounts per day by sales team and agents higher number of accounts • No change to other assumptions

• Average account balance of MK 6,500 (US$9), with increase to MK 13,000 (US$18) Scenario 3 (S3) – S2 and by end of period higher number of active • Five new accounts per day by sales team and agents accounts • Sixty-five percent of accounts with balances > MK 200 (US$0.27) HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

For each of these scenarios, the breakeven point and the date of Unfortunately, despite significant achievements, NBS has fallen 23 return on investment differ. short of reaching projected numbers of accounts and deposit volumes in the early years (2015 and 2016). Not meeting the At current trend, the business case projected that NBS would objectives further delays reaching profitability. However, the reach the breakeven point at the end of 2016. Yet, the return business plan clearly shows that there is a path to profitability if on investment was not planned before 2020 (see figures X and certain business outcomes are achieved. XI). However, when using more ambitious scenarios, return on investment was projected to be reached by 2018.

Figure X: Net profit per year (MK million) without grants and external assistance for NBS Bank

300

200

100

BREAKEVEN POINT 0

-100

-200

-300 2015 2016 2017 2018

Current trend Scenario 1 Scenario 2 Scenario 3

Figure XI: Cumulative net profit (MK million) with grant funds for NBS Bank

200

100

BREAKEVEN POINT 0

-100

-200

-300

-400

-500 2015 2016 2017 2018

Current trend Scenario 1 Scenario 2 Scenario 3 HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

24 BENEFITS FOR NBS BANK Competitive advantage Market deepening Bank Pafupi is a unique offering in Malawi: customers are not aware of other banks with agents. For a full-fledged bank such as NBS, developing Bank Pafupi was a way to reach out to the informal and unbanked sector. Going to agents became the preferred way to save (compared to keeping BENEFITS FOR CLIENTS money at home or using village savings groups). And, with 86% of Pafupi clients being previously unbanked, NBS clearly deepened its market presence to a whole new and unsaturated seg- “It’s the simplest way… In the past, it was ment, which augurs sustained growth rates for the near future. very difficult to save money in the bank. Now everyone can.”

Pafupi Savings client Operational savings in the long run “The bank closes at 3:00 whereas the agent Though implementing the agent network has been a costly ven- stays open much later, so we can still get ture, it will allow NBS to experience some savings in the long run through expansion to new locations at very low cost. Although money.” NBS did not engage in a detailed business analysis, agents are Pafupi Savings client widely considered to be significantly more cost effective than brick-and-mortar branches. An agent is similar to a teller, but an Source: Quotes from Pafupi pilot assessment conducted in May 2015 by Women’s World Banking, during focus groups in urban and rural areas agent has his/her own physical premise. For a teller, a bank has to pay for salary, medical expenses, pension, education fund and other expenses; in comparison, for an agent network, expens- At the time of the pilot assessment, conducted by Women’s es for the bank only consist of commissions, plus salary and World Banking in May 2015, over 50% of transactions were monitoring expenses for ANOs managing several agents. As completed at agent’s locations. Clients reported various bene- the agent uses his/her own physical premise, the bank does not fits of using agents, including savings in transportation costs, have to bear the costs associated with it (electricity, rent, etc.). proximity, longer operating hours, no queues and ease of use (e.g., some clients reported that they could send their children to transact when they themselves were too busy to visit). Increased savings activity Deposits in Pafupi Savings Accounts have been on the rise since their creation. As of 31 March 2017, NBS collected a total of MK 725 mil- Savings in transportation costs lion (US$996,990) in deposits from Pafupi customers, who previously Bank Pafupi is less expensive for clients: it used to cost around were mainly saving informally at home and/or in savings groups. US$8 for a rural person to access a financial service (taking into account poor road infrastructure, recurrent rain and limited trans- Offering the bank at the customers’ doorstep has triggered more portation network). The NBS approach to implementing an agent regular deposits. Pafupi has increased formal savings activity, as network closer to where people actually live decreases these demonstrated by the fact that 86% of Pafupi clients were previ- costs for clients. Table 10 summarizes this and other benefits, ously unbanked but now have the ability to make deposits in a as well as some issues with the Pafupi package. formal account that is accessible near where they live. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

Table 10: Benefits for clients of NBS Bank 25

• Having a bank at their doorstep • Opening an account quickly, with ATM automatically activated • Earning interest with Pafupi Savings Account • Transacting small amounts • Avoiding queues • Enjoying longer opening hours (agents stay open longer than bank branches)

• Experiencing delays (in worst case, denials) when agents favour their regular business activities over agency banking services • Facing lack of liquidity at agents (agents often lack cash to facilitate withdrawals) • Suffering from lack of active agents in some areas • Running into Pafupi account balance and transaction limits

BENEFITS FOR AGENTS SUMMARY OF BENEFITS

Bank Pafupi presents many benefits for agents as well. Feedback Table 11 summarizes benefits for all stakeholders involved. collected from agents confirms that the agency business adds value as it drives more clients into the shop (increased traffic), which can result in cross-selling opportunities. In addition, the signage for agency banking also improves the visibility of the shop. Besides these indirect benefits, agents receive direct financial benefits in the form of commissions, which increase their revenues.

Table 11: Summary of benefits for NBS Bank, clients and agents

Benefits for NBS Bank Benefits for clients Benefit for agents

• Offers way to reach out to informal • Feels more comfortable transacting • Provides more revenues with sector with agents, who allow small amounts commission • Is cost effective (compared to • Ensures money is in a safe place • Offers cross-selling opportunities brick‑and-mortar branches) (bank) • Increases traffic • Increases savings activity (monthly • Eliminates barriers to saving at a bank or quarterly deposits) • Offers access to services close by (in • Offers competitive advantage neighbourhood) (unique offering for clients) • Is less expensive than using a bank (savings on transportation costs) HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

26 CASE STUDY OF NBS BANK IN MALAWI— KEY INFLUENCING FACTORS AND LESSONS LEARNED

The experience of NBS illustrates that the journey combination of the institution’s own resources as well as exter- to agency banking needs to be carefully planned nal resources, and it was supported by a competent technology development backbone, through an internal team with the ability and tested—planned through appropriate support to develop information technology (IT) solutions in-house. and resources (financial, technical, managerial, etc.) and tested through regular small and con- However, some key elements an FI needs to consider with this cise pilots. A successful implementation of agen- model were lacking back in 2012: although NBS was on the verge of implementing an agency channel based on general packet cy banking is not one built in stone but is rather a radio services (GPRS) technology, there was no offline strate- work in progress with continuous improvements. gy as part of the risk management plan. Liquidity management policies were initially weak (relying on service centres only—no super dealers), which later led to considerable challenges for operational management. NBS is now trying to resolve liquidity ANALYSIS OF READINESS management issues, for example with the implementation of push-and-pull services in partnership with MNOs. Readiness at time of digital financial service engagement Figure XII: Readiness of NBS Bank at time of digital financial Figure XII summarizes the institution’s readiness at the time of service engagement designing Bank Pafupi and Pafupi Savings, including the following:

• Internal capacity (management, staff capacity, and human INTERNAL resource policy and training) CAPACITY

• Financial capacity (resources to pursue the business model) 5 4 • Operational capacity (liquidity/cash management, sustain- 3 ability and regulatory compliance) 2 FINANCIAL • Technical capacity (connectivity, management information STABILITY 1 CAPACITY system [MIS] and interfaces) 0 • Stability (portfolio at risk and governance)

At the time of engagement, NBS was in a very good position to develop its ADC project. The project was strongly supported by management and partner organizations, which planned and im- TECHNICAL OPERATIONAL plemented the required changes in the organizational structure, CAPACITY CAPACITY set up new policies and processes, and designed an effective training plan from head office staff to field officers. The project was fuelled by adequate financial resources, coming from a Note: The assessment of financial capacity did not take into account financial self-sustainability as these data could not be obtained. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

Meeting recommended prerequisites 27

All dimensions are further described in table 12.

Table 12: NBS Bank compliance with recommended prerequisites for Business model #4

Dimension Prerequisite Prerequisite descriptiona NBS status

A channel manager or ANM (at senior • The management of NBS has been management level) needs to be recruited/ involved since day one in building the appointed within headquarter staff and should ADC by going on an exposure visit to be exclusively dedicated to building/managing Kenya and supporting the project in Management the agent network. The channel manager should front of the board through different inform his/her supervisors of channel activity phases. on a regular basis (e.g., initially through weekly • NBS set up a high-level Pafupi working reports that can later evolve to monthly ones). group, in charge of issue resolution, with heads of departments from across NBS.

• The FI must identify how many agents • The internal structure was modified to it needs at the time of launch and have fit the introduction of the new channel, a roll-out plan for recruiting agents. It is including channel managers and officers important to have a detailed process to at the head office as well as agent identify, recruit, train, brand and manage network supervisors. the agent network. At launch, and on a • Staff capacity was anticipated for pilot daily basis, there needs to be a dedicated and roll-out. Processes were redefined agent team, including the following: so that responsibilities would be clear marketing staff, IT staff (in charge of among the different staff. system integration and management) and Staff capacity • Because of the integration of the ICT Internal back-office staff in charge of service-level team into the core product team, the ICT capacity monitoring, settlement with agents, KPI team was able to better understand the monitoring, etc. IT changes required and how to meet • The FI needs a channel manager/ANM at shared objectives.b headquarter level but also staff in charge • There was a tendency to underestimate of managing agents at branch level. the human resource efforts required at • The FI should ensure that internal the ANM level as well as at the back- auditors start to measure and record office level (especially regarding the agent-related activities specifically. production of starter packs).

Someone with agent experience should • Training-of-trainers’ sessions with be recruited as ANM since it is a full-time product, agency banking and training position. Job descriptions need to be teams allowed replication of training adapted/created, and staff involved in the inputs throughout NBS. Human new channel need to be trained. Depending • Training of all staff (at head office and resource on the business model selected, there may branches, with field sale staff and agents) policy and be a need for training super-dealer staff. training in various topics, such as acquiring and educating customers, communicating with women customers, conducting transactions and managing sales teams to achieve targets was held.

Financial self- The FI should be financially self-sustainable n/a Financial sustainability/ c capacity (FSS >100%) to engage in this model. Breakeven

Legend: Green: prerequisite met; Orange: prerequisite partially met; Red: prerequisite not met; White: no data available for evaluation HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

Dimension Prerequisite Prerequisite descriptiona NBS status

The FI should use its own resources, NBS used a combination of its own and external 28 complemented with external resources. The financial resources from the UNCDF-MicroLead FI should plan to spend at least US$250,000 programme (for marketing and training costs for developing its agent network, though that only). NBS carefully planned its spending Financial number can easily go up to US$1,000,000 against future profits in detailed (scenario- capacity Financial (cont.) resources depending on the model chosen. based) financial projections to identify when it would reach the breakeven point. However, NBS started this project when going through financial difficulties, which made the board more reluctant to approve spending.

• The FI is solely responsible for liquidity • NBS is responsible for liquidity management (in the eyes of the management. Agents are trained on client). Potentially, if working with a liquidity management, but NBS still super dealer, the FI may provide initial experiences some challenges—in cash liquidity (for withdrawals). For particular, a lack of agent motivation to independent agents, the FI should have invest capital in the agency business, a clear liquidity plan, especially for loan which translates into cash constraints for disbursements. Daily reconciliation transactions. should be done at all branches/agents • Rebalancing is also difficult. NBS Liquidity/Cash and audited at headquarters. An agent developed push-and-pull services to help management liquidity manager should be nominated agents better manage their liquidity. at the FI and interact with agent Currently, there are no super dealers representatives or the super dealer. because the size of the agency business • Liquidity management should be does not justify it. But, as it grows, NBS automated, not manual. will propose to the biggest and more liquid agents to become super dealers. • There is no specific resource to manage liquidity at agents; rather, the ANM takes care of it. Operational capacity Operational self-sufficiency should be greater Operational self-sufficiency is 82%. Operational than 100%—ideally, around 120%–130%.c self-sufficiency/ The FI should not engage in developing its Breakeven own agent network when it is still trying to reach its equilibrium.

• The FI should have a regular FI licence. NBS has a banking licence, and it is in touch There may or may not be a need to have with the regulator regarding all activities related a specific agent/distribution licence for to agency banking. this model. At minimum, the FI should have authorization from the central bank to have its own agents. • There is, however, a definite need for the FI to follow agent regulation set by the central bank, including the policy for Regulation recruiting and managing agents, which will largely focus on agent KYC requirements. It is important to check regulation in the country regarding activities that agents can perform (i.e., loan applications) and if agents are required to be exclusive or not. Informing the central bank of plans and seeking approval is recommended (and compulsory depending on regulation).

Dimension Prerequisite Prerequisite descriptiona NBS status

Agents need to have in-network connectivity, NBS equipped the sales team and agents with d ideally within a VPN. The FI should develop required tools (phones, POS devices) connected 29 Connectivity an offline strategy as part of the risk to the Internet. Agents were given GPRS-based management plan. data cards, but there was no offline strategy as part of the risk management plan.

• Ideally, the FI should have a CBS/ • Transactions are in real time. MIS that includes modules for agent • NBS has a high-performing MIS (Temenos management, card management, T24). call centre and SMS. Depending on • System adjustments were made to the the business model and platform MIS CBS to allow integration with the new Technical functionality, the FI might want/need to capacity technology platform developed for agency invest in new hardware and software. banking. • Transactions should be in real time and not batches to avoid issues.

The FI must be able to reconcile all • There was internal development of the transactions carried out by its agents on a following: daily basis with those that have happened in oo Mobile banking platform Interfaces its CBS/MIS. The FI should integrate its CBS oo Mobile application with the technical platform of its provider in oo Account management system real time. • All interfaces interact with each other.

For MFIs, the portfolio at risk greater than 30 In 2012, the capital adequacy ratio of NBS Quality of days should be less than 5%. For banks, the was 14%. portfolio capital adequacy ratio should be more than 8%.

Stability • The FI should have stable governance NBS never faced any governance crisis. The to be able to plan and roll out an agent structure is well governed. Governance network. • The board should support the project fully.

Legend: Green: prerequisite met; Orange: prerequisite partially met; Red: prerequisite not met; White: no data available for evaluation

a These prerequisites come from ‘Part 1: Business model description’ of this toolkit. b ICT, information and communication technology c The measures of operational self-sufficiency (OSS) and financial self-sustainability (FSS) are closely related but are not the same. OSS is used to assess how far an FI has come in covering its operating expenses with its operating income. The formula to calculate it is operating income / total operating expenses. In contrast, FSS is used to assess whether an FI has earned enough revenues to cover all costs: operating expenses, financing costs, provisions for loan losses, and cost of capital. The formula is operating income / (operating expenses + financing costs + loan loss provisions + cost of capital). d VPN, virtual private network

KEY INFLUENCING FACTORS Understanding that a tailored approach was of clients who gradually found it easier to trust and use the banking needed to demystify banking services platform. NBS also worked on raising awareness levels in terms of savings and other financial services offered by NBS.

As highlighted by the 2008 FinScope survey, which triggered the idea of addressing the 80% of people without access to banking services in Malawi,12 there were psychological barriers for people to use com- Better understanding the realities of this mercial banks like NBS. By developing a specific and tailored channel model through international exposure and working with local businesspeople, with whom potential clients conduct their daily transactions, NBS progressively gained the trust The NBS product team and executive leadership team took part in a learning exchange. The group visited Kenya to learn about the opportunities and challenges in developing agent networks. 12 Agar, Savani and Thompson, ‘FinScope Malawi 2008.’ HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

30 The visit mainly focused on building the agent network, devel- CHALLENGES EXPERIENCED AND oping innovative mobile products and creating strategic partner- MITIGATION STRATEGIES DEPLOYED ships with MNOs for expansion. This visit to Kenya taught NBS that the agency banking model works and is scalable. According Agent-related challenges to management, other takeaways were these: Over the course of the project, the institution faced many issues • Understanding the importance of a reliable technology plat- related to agent network management. Some were overcome, form for agency banking but others are still being addressed. • Using mobile solutions for transactions at agent outlets • Agents were dissatisfied by the value proposition of • Knowing how to build a value proposition for agents mobile banking, which resulted in limited willingness to • Exploring the marketing of the channel to attract and instil leverage capital and increase the number of clients. trust by customers in the channel )) Not-appealing-enough commission structure Thanks to the exposure visit, the motivation of NBS to explore mobile-based solutions grew stronger, with a better understand- Agents are businesspeople who need liquidity to conduct their ing of agent network management (recruitment and monitoring affairs. Implementing this business model means they have to of agents, roles and responsibilities of agency banking team, put some capital aside to enable deposit and withdrawal trans- etc.) and an understanding of the role for agents in opening actions. Hence, the gross margin made in agency banking has to accounts. This motivation and improved understanding led the be competitive against their other businesses (e.g., selling soap, institution to advocate successfully for regulatory support to en- sugar, bread). Agents need to be convinced to move their busi- able mobile solutions. ness capital to agency banking. However, at the outset, many agents did not consider the commission structure appealing enough. Although agents shared (during consultant visits) that indirect benefits were a driving force (increased traffic at the shop, Understanding that sustainability and scale improved client trust, greater cross-selling opportunities, etc.), of agency banking will take time agents were mostly looking for direct financial benefits. Yet, those financial benefits were not motivating enough. Because of FIs too often expect mobile solutions to quickly reach scale and the weak value proposition, agents ended up not putting enough sustainability, which puts a lot of pressure on teams. In the case money aside to ensure the success of the agency business. of NBS, a strong business case was developed to assert that financial profits would not be instantly reached. With support from This issue is now being addressed with the development of a new Women’s World Banking, the team developed a financial model commission structure: instead of offering a fixed commission of for the Pafupi product and the agency channel to determine prof- MK 87.5 (US$0.12) for withdrawals and MK 37.5 (US$0.05) for itability. As shown in above sections, the model showed that deposits,13 NBS is contemplating introducing a variable commis- the proposition would not break even before 2017 and would sion structure, which will depend on the amount of the trans- not achieve return on investment before 2018 (at the soonest). action being performed. Namely, the higher the amount of the transaction, the higher the commission will be. The objective Other factors also contributed to making this initiative a success, is to motivate agents to invest adequate capital so that service including these: denials can be reduced. Repercussions on clients are intended • Having a dominant position in the market with a na- to be low, as this new commission structure was designed in a tionwide footprint (largest branch and ATM network in way that customers will end up paying a similar fee for the most 14 Malawi) and being the first mover to digital frequent transaction amounts. The new commission structure, which aligns with what competitors in the market are offering, • Having strong commitment and support from the board and will soon be applied. senior management to introduce the new product during a period of financial uncertainty and economic difficulties for the country

• Having clear vision and growth objectives (the ambitious strategic growth objective was to deploy a tailored approach to double the customer base in four years after the project’s launch) 13 For a withdrawal, the client is charged MK 150 (US$0.21), of which MK 87.5 (US$0.12) goes to the agent and MK 63.5 (US$0.09) goes to NBS. Deposits are free for clients but agents receive a MK 37.5 (US$0.05) commission from NBS. 14 The average withdrawal amount is approximately MK 5,000 (US$7), while the average deposit amount is around MK 7,000 (US$10). HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

)) Flawed communication around the value proposition The financial inclusion agenda of NBS and its partners (Women’s 31 World Banking and MicroLead) was to focus on low-income women, Another problem that contributed to agents being dissatisfied by helping them to open bank accounts and save. This objective was with the value proposition at the outset was that the benefits based on initial customer research from Women’s World Banking, were not properly communicated and explained to them. The which revealed the following characteristics of women in Malawi: main reason was that ANMs, in charge of attracting and recruiting agents, did not really understand themselves the benefits • Serve a unique role as household financial managers that agents could gain from agency banking. • Face strong financial pressure and actively save using informal means Considering that agency banking was new to most agents, they needed to acquire a clear comprehension of what it entailed and • Face barriers to accessing banks (emotional and physical dis- what they could gain from it (on top of financial benefits). As tance, cost, lack of formal identification, low financial literacy) demonstrated in other markets, this understanding is often key to on-boarding agents. • Perceive banks as aspirational but out of reach Although women were the primary target of Bank Pafupi, the To address this challenge, besides reviewing the commission project did not succeed in its objective of reaching 48% wom- structure, NBS continuously worked on training its teams in- en—it only reached 30%. NBS realized that women can be hard volved in agent network management so that the Bank could to reach without specific targeting efforts. They usually make provide the right message to get agents on board. decisions upon consulting their husband. More often than not, the male spouse ends up opening the account in his name rather In addition, with Pafupi gaining more and more ground (i.e., than in his wife’s. Ensuring the future success of Pafupi Savings growing demand), agents may now start valuing indirect bene- will imply finding solutions for NBS to continuously increase the fits, by seeing increased traffic in their shop. representation of women among the client base, and behavioural research may be a useful tool to help NBS unlock this challenge. • There lacked a uniform and market-based approach to selecting agents. • Some of the product features decreased customer When starting the project, the NBS team in charge of agent net- satisfaction. work management did not plan for a uniform approach to selecting During informal customer satisfaction surveys (focus-group dis- agents, which made recruiting agents difficult. On the one hand, cussions during the pilot assessment) and ANM surprise visits to there was an overlap of team members in the same market/geo- agents, NBS realized that high-end customers (those transacting graphical area, as ANMs were not assigned to specific territories. with relatively large amounts) do not favour the agency channel On the other hand, there was a limited number of potential agents because of the low transaction limits set on deposits (MK 30,000, who met the tight requirements set by NBS; thus, identifying or US$41) and on withdrawals (MK 15,000, or US$21); they prefer these agents without a proper system in place proved challenging. to go directly to the branch or service centre. In order to overcome NBS realized that it had to loosen some of the requirements it put this challenge, ceilings have been raised to MK 40,000 (US$55) in place to build a more prosperous agent network. For example, in for both transaction types, based on average transaction values. the beginning, an agent was required to have US$600 in liquidity, which was too high for most prospective agents. NBS reduced NBS had to make further refinements of the Pafupi Sav- that requirement to US$100 (minimum required for all agents), al- ings product, by dropping two features that were designed lowing it to recruit more agents between 2015 and 2016. at the very initial stages but proved unsuccessful: the one- time PIN codes and the referral cards. The Pafupi Savings Ac- To clarify and homogenize the agent selection procedure, NBS, counts’ starter packs included, in addition to the card, some with the support of Women World’s Banking, designed a stan- one-time PIN codes to be able perform transactions at an dardized process to recruit agents. This process, shown earlier agent’s location even without having a personal phone.15 in figure V, serves as a guide for ANMs to identify, approach and But after completing an assessment of the product, NBS realized select potential agents. that these codes were costly to produce and to use, and few customer were actually using them—most of them were just using cards. As for the referral cards (a promotional incentive for cus- Product-related challenges tomers to enrol relatives), NBS realized that it was not effective and that it had been difficult for staff to keep track of the referees.

• Although they were the intended targets of Pafupi, women customers proved hard to reach. 15 Each code could be used to transact only once. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

32 • Marketing techniques were not always appropriate, re- • Retaining ANMs was an issue. sulting in low customer awareness and understanding. ANMs are hired on a temporary basis and do not have a perma- From early lessons of the pilot, NBS learned that the marketing nent contract, which prevents them from staying for the long- techniques used were not always the most appropriate/impactful. term, and they generally end up taking a permanent position Indeed, the pilot was only based on below-the-line marketing ac- elsewhere. This situation represents a considerable loss for the tivities: to address the low-income market, NBS thought that com- institution, as all the training provided and the skills developed munity communication channels (e.g., community radio) would along the way are lost, and it is one of the reasons why the team be the most appropriate when, in fact, people react much more of ANMs is so small. to national communication channels (e.g., national radio). The de- sired impact of the marketing campaign was thus not achieved, with persistently low awareness levels and limited uptake. System issues

Besides proving ineffective in raising awareness, the marketing • There were system development issues. techniques used did not trigger customer understanding either. It was difficult for people to understand that what they usually Setting up the agent network required the development of a do at the bank could now be done at a shop close to them—the first-hand technology system that would fit into the existing op- same shop to which they normally go to buy groceries. Potential erations of NBS. The development was done in-house, with de- customers have frequently expressed doubts in the system. velopers that were new to the solution. These developers had to go through several iterations to fill the gaps and find the perfect To overcome this challenge, NBS needs to continue making signif- technology solution. For example, in the beginning, the system icant efforts to enhance customer awareness and understanding could not execute transaction denials. Cash-in transactions were of savings and financial services, particularly (branchless) banking authorized even though the agent’s float account was empty. services. Now, when the agent’s float account is depleted, the trans- NBS witnessed significant growth in its activities as an indirect action is denied. These kinds of system issues needed to be benefit of a national campaign aimed at increasing market uptake solved before the agent network went live, which explains why (a campaign designed by the Government, the central bank and the pilot phase was spread out over three years. other financial sector stakeholders). Raising government officials’ awareness of the importance of financial inclusion can help FIs • There were connectivity issues. gain some traction for their activities (e.g., ADCs) to increase financial education and awareness, positively impacting the activi- NBS is using an Internet-based system. Yet, the Internet infra- ties of the FIs indirectly. structure in Malawi is problematic. The network is not up to international standards. Using a GPRS-based platform proved difficult because the Internet connection does not remain stable. NBS cannot quantify how many transactions have been impact- Human resource issues ed as a result of connectivity issues, as agents do not track this indicator. However, it might be useful to track the number of • There were difficulties to produce and activate the transactions impacted, as a high number could potentially insti- starter packs in time to meet customer demand. gate some action from telecom operators and regulators.

NBS faced human resource constraints related to the production of Compared to the beginning of operations, several adjustments starter packs, which are given to customers when opening a Pafupi were made, but it is still not enough to entirely overcome the Savings Account. These packs are produced in-house at the head issue. NBS is hopeful that, as more stakeholders enter the mar- office before being sold to customers. During the production phase, ket, infrastructure will keep on improving. bank staff needs to link an ATM card to an account in the system, before doing the packaging and sending them to the service centres.

In the early days, the existing human resources at NBS could not handle the level of demand. The ADC department had to write a formal request to the board to be able to recruit additional staff to assist with the production and marketing of the starter packs. Four additional staff were recruited to help overcome this challenge. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

LESSONS LEARNED • IT challenges can significantly delay the pilot launch. 33 • Technological challenges require a dedicated support officer for product success. The experience of NBS with its Pafupi package offers interesting lessons for other commercial banks and FIs that wish to reach rural and low-income segments. Below are some of the critical 4. Keep in mind that successful lessons learned to drive product development and uptake. introduction of new products and channels implies the use of change 1. Learn from small, concise pilots. management techniques.

The experience of NBS proves the following: • One of the most important cautions for an FI implementing a change like agency banking is not to rush into things • Hierarchy and responsibilities: Accountability of sales and to take the time to get things right. By implementing force management at the branch level and greater over- several pilots over the course of three years, NBS was sight at the head office level is key to reaching targets and able to identify bottlenecks and find ways to address addressing performance challenges. With the engagement them. When it ran into issues with the Pafupi Savings of the head office at NBS, the number of accounts opened pilot, NBS even considered reducing the scope of the improved from 3 accounts per day per salesperson to 5. pilot to one sole region (Southern) to more specifically understand how system and human resource challenges • Key performance indicators: It is important to set clear that arose could be addressed. KPIs, but it is just as important to agree on their definitions.

• An FI that is piloting this model needs to know what • Information sharing: An internal coordination system works or does not work and why, and it should make this must be installed through a high-level working group and assessment before going to scale so it does not impact coordination across the institution. This system proved people’s trust if there are complications. Keeping a small effective in addressing bottlenecks and troubleshooting scope and taking determined actions at first is the key to in the case of NBS. growing strong. • Internal capacity: Product awareness and training at all levels is crucial for the success of product roll-out. 2. Build a strong relationship with the agent network. 5. Implement targeted sales and marketing approaches. • In this model, agents are the face of the FI to clients; in a way, agents are the ambassadors of the FI. This • Targeted sales: Setting targets for the sales team gen- business model will only succeed if agents are provid- erates a high level of commitment to reach more cus- ing quality service to FI clients, are treating them well tomers. In parallel, having the right staff to drive sales is and serving them quickly. If not, the ANM needs to be important: not everyone can be an effective salesperson aware of it in order to prevent agents from jeopardizing => Identifying champions within the team is critical for the credibility of the FI. Regular examination of customer the success of operations. Once identified, these sales- complaints and problems that agents experience can be people need to receive specific training on how to ad- a great help in this area. dress the target market (i.e., women and those living in rural areas who have low awareness levels of savings and branchless banking services). Indeed, people in that 3. Ensure quality of technology. target market require more explanation and education, in plain language of the vernacular, than usual customers. • At the planning stage, it is necessary to build in sufficient • Marketing: Finding the right marketing techniques mat- time for testing and resolving problems. ters. Energy should be focused on the most effective • Frequent service denials cause loss of trust and damage tactics to drive account growth during roll-out. For exam- the brand. ple, NBS learned that community-based marketing was not the most effective technique to reach women and rural communities. It needed to be embedded with finan- HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

34 cial education messages and national media. NBS real- THE WAY FORWARD FOR NBS BANK ized that radio has the potential to reach a greater proportion of Malawians. One survey revealed that 62% of the In the near future, NBS aims to continue expanding the scope and population uses the radio as a source of information.16 quality/performance of the Bank Pafupi agent network and the Newspapers are less useful, as they are mostly read in Pafupi Savings product through various action points: urban areas such as cities and district towns. Modern • Increase the number of agents: To expand the number of media facilities such as Internet and SMS seem to be an access points for Pafupi Savings customers, NBS is forming even less effective vehicle for financial education as 3.8% partnerships with MNOs (Airtel and Telekom Networks Mala- and 3.9% regularly use such facilities, respectively.17 wi) to expand its Bank Pafupi agent network. By increasing the number of agents, NBS may reduce service denials. The MNO 6. Consider that expertise can be gained agents are easier to work with because they already have a good through partnerships with technical understanding of the agency concept. Besides having a larger organizations. agent network available, NBS also benefits from the integration of a bank-to-wallet solution, allowing people to complete push- • NBS gained valuable insights from visiting and learning and-pull transactions from their bank account to their wallet. from other institutions in different markets. • Increase account uptake: To increase uptake of accounts, • With support from MicroLead and Women’s World Bank- NBS is forming partnerships, engaging key influencers to sup- ing, NBS had access to greater expertise and knowledge- port awareness-raising, and targeting lead segments such as able consultants. In particular, an experienced Resident cooperative farmers. Account-opening at the agent’s location Advisor was a valuable resource in the complex Pafupi will also hopefully facilitate account uptake. Thus, NBS will project. The Resident Advisor helped with implementing keep empowering agents to open Pafupi Savings Accounts. standardized agency banking recruitment and monitoring guidelines. She also supervised product development, • Capture more deposits by seeking RBM approval to staff training and process improvements. increase account balance limits: As Pafupi Savings is a simplified-KYC account, it has account balance limits as 7. Remember that it is important to engage stipulated by RBM. At the policy level, NBS is actively regulators. seeking approval from RBM to increase account balance limits on Pafupi Savings as current limits are restrictive and • Working closely with regulators might help an FI solve do not align with the savings capacity of the target market. issues that are hindering the business. For example, • Increase women’s uptake of the account with targeted KYC procedures were a hassle for low-income women activities and incentives for sales agents to reach women: at the outset of the NBS project. These women lack the In order to reach more unbanked women, NBS will focus on two forms of identification required by law to open a targeted outreach to savings groups, cooperatives and oth- formal bank account (passport or driver’s licence). NBS er groups of women in order to conduct sales presentations. engaged the regulator to waive these restrictions, al- When women gather, there is an opportunity to go beyond the lowing for the use of a more widely owned document sales pitch and introduce financial education in more depth, giv- among rural women: the voter identification card. ing these groups an understanding of the product, its benefits, • Now NBS is trying to solve another client issue with how interest works, how to transact on the account and how to the regulator. As previously mentioned, Pafupi Savings handle their ATM card and PIN code. In addition, the sales force transaction limits with agents are restricting customers will be incentivized for the extra effort required to win women from saving larger amounts and discouraging account clients: MK 350 (US$0.48) will be awarded for each new fe- usage. NBS has been actively seeking approval from male client versus MK 250 (US$0.34) for each new male client. RBM to increase balance limits for the Pafupi Savings • Form new partnerships: In 2016, with support from Account from MK 50,000 to MK 200,000 (US$69 to UNCDF-MicroLead, NBS conducted a pilot to provide infor- US$275) to meet demand from high-performing savers. mal groups belonging to a local MFI (CUMO Microfinance It is still being scrutinized at the central-bank level. Limited) with access to a basket of financial services including the Pafupi Savings product and the Bank Pafupi agent network. NBS would like to expand the partnership with CUMO as well as engage with more MFIs (e.g., CARE and 16 Ephraim W. Chirwa and Peter M. Mvula, Malawi: Baseline Financial Literacy and Consumer Protection Household Survey, final report for Reserve Bank of World Vision) and village savings and loans associations to Malawi (Zomba, Malawi, Wadonda Consult, August 2014). promote the NBS group proposition to their customers. 17 Ibid. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF CEC IN CAMEROON—CREATING ITS OWN AGENT NETWORK

35 Caisse d’Epargne et de Crédit du Cameroun (CEC) was one of Channels, tools and technology the first MFIs in Cameroon to develop its own agent network, having done so in 2015. The pilot phase just ended, and now CEC is using the following: CEC is scaling it up.Transactions available at agents are ac- 1. A network of 80 of its own agents exclusively dedicated count-openings, deposits and withdrawals. Bill payments and to savings collection in the field: loan repayments should follow shortly. • Transactions authorized with agents include ac- This case study illustrates how a medium-size institution (30,000– count-openings, deposits and withdrawals. Bill payments 60,000 customers) like CEC can find innovative solutions to offer and loan repayments will be available soon. proximity banking services to its customers. • Agents are self-employed, paid according to savings collected (1.5% of the amount collected). Digital model in a nutshell • Each agent is attached to a branch, and each branch CEC implemented branchless banking by creating a network covers a maximum area of 25–50 km. There is no cap . CEC created a hybrid mod- of contracted mobile field agents on the number of mobile agents per branch. el, incorporating characteristics of Business model #1: Use mobile as a tool (e.g., having mobile agents) while leaning towards 2. SMS banking, in order to inform customers of the balance the present Business model #4: Develop own agent network, on their account. with advanced operational, technical and supervisory systems 3. Android smartphones with Bluetooth printers, used by for efficient operations. Mobile agents were a first step, to serve mobile agents: urban areas, for CEC on its digital path. Fixed agents will be in- troduced in 2017 to cover rural areas. • Transactions are now done in real time, since the centralized MIS was implemented. The infrastructure in place is specific to CEC and does not depend on an MNO. CEC created its own Internet-based plat- 4. A rented central server, due to human and financial issues: form, instead of using USSD technology from an MNO. Each mobile agent visits his/her area of operation and collects sav- • Data processing is outsourced via the rental of a dedicat- ings from customers on a daily basis, after registering them ed large-capacity server (exclusively reserved for CEC). on a CEC-supplied terminal. The data supplied are transmitted • Monitoring tools are used to monitor in real time what to the branch server using data connectivity. At the end of the happens on the server. day, reconciliations are performed that confirm the amounts to be paid in cash by the mobile agents. 5. M-PERFECT software from CAGECFI, enabling operations over the Internet (with secure connectivity via a virtual private network). Objectives for developing its own agent network Digital journey • Gain operational efficiency: securing funds, limiting fraud and saving time for mobile agents CEC followed four steps on its digital journey:

• Reduce cost of operations 1. Research phase and peer-learning trips: CEC carried out research, tests and optimizations between 2013 and 2016; • Decongest tellers in branches (by serving customers in participated in MicroLead peer-learning workshops in Rwanda the field) in 2014, Uganda in 2015 and Ghana in 2016; and received training on agent network management in Senegal in 2015. • Gain a competitive advantage (among more than 400 MFIs in Cameroon) with an innovative approach 2. Internal development of a proprietary platform and an , coupled with an online web server • Boost customer account-openings and monthly collection Android application from which CEC collects information on saving operations volume in the field: The platform is synchronized with the different servers of its branches. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF CEC IN CAMEROON—CREATING ITS OWN AGENT NETWORK

3. A 6-month pilot phase from April to September 2015 with four Key success factors mobile agents, conducted with the support of MicroLead (technical and financial partner): Both POS devices and smartphones • Exchange trips: Trips to Rwanda, Uganda, Ghana and Senegal were tested. Results were satisfactory for both options, though enabled CEC to discover other solutions while identifying chal- smartphones were a lot cheaper; thus, CEC decided to go with lenges, pitfalls and lessons learned. smartphones.18 • Significant research efforts. 4. Roll-out finalized in July 2016, with training, equipment • Institutional support (from the board of directors) and the and deployment of 80 agents. formation of a project team.

• Institutional capacity-building (by MicroLead), including the Cost/Benefit analysis digital finance project, and technical assistance received 1. A branch must make commissions of at least CFAF from BASIX and Pamiga. 19 120,000 (US$203) to support the minimum expenses re- • Flexibility by CEC: The project was initially conceived in col- lated to the platform and agents (one branch is responsible laboration with MNOs, but MNOs were not interested. The for several agents). technical solution is thus only based on SIM cards and se- 2. The direct monthly charge for all transactions per agent is cure Internet connection. CFAF 8,000 (US$14). • Reliable technology solutions and flexible suppliers. 3. Customers pay a monthly commission calculated on the • Availability and stability of electricity in areas of operations. monthly amount saved: CFAF 500 (US$0.85) if monthly savings are below CFAF 16,500 (US$28) or 3% if savings are above CFAF 16,500.

4. Commissions are split as such: 1.5% for the agent and 1.5% for CEC.

RESULTS ACHIEVED

• Initial expectations exceeded: CEC had planned with MicroLead to set up a digital platform and 25 field agents by the end of 2016—CEC enrolled 80 agents • Secured funds: Reduced losses due to fraud from CFAF 30 million to CFAF 10 million • Increased amounts saved over time, providing proof of customer trust • Improved customer portfolio management with SMS banking • Time saved for collection agents (more time dedicated to credit transactions) • Number of transactions: currently evaluating results

18 The cost of a POS device equals the price of three smartphones coupled with printers. 19 Conversion rate: CFAF 1 = US$0.00169386 (Source: www.xe.com, 17 May Client of CEC Cameroon performing transaction with agent Courtesy of CEC Cameroon 2017). Note: This rate is used throughout this case study when United States dollar equivalents are provided for CFA francs unless otherwise noted. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF CEC IN CAMEROON—CREATING ITS OWN AGENT NETWORK

Challenges and lessons learned

• CEC started with a decentralized platform in which each branch KEY FIGURES had its own server and consolidation was done at headquarters. The issue was the lack of real-time transactions, forcing CEC to • Status: Member cooperative migrate to a centralized MIS. • Loan portfolio (2015): CFAF 2,900,679,322 (US$4.9 million) • There is an absence of regulation on digital finance for MFIs in Cameroon. The regulator has only allowed FIs to issue • Savings portfolio (2016): CFAF 4,196,066,739 e-money. Regulation is needed in order to increase the op- (US$7.1 million) tions for FIs to go digital. • Number of borrowers (2015): 33,165

• Limited connectivity in some areas forced CEC to use multiple • Number of savers (2015): 51,636 SIM-card phones to switch from one MNO network to another, • Portfolio at risk greater than 30 days (2016): 12.51% depending on connectivity. • Branches: 10

• The quality of data connections is low; delays or interruptions of 10–15 minutes slow down collection of savings in the field by mobile agents.

• There was resistance by staff. Some mobile agents, who previously did not declare all the money they collected manually (in other words, agents who were committing fraud), negatively reacted to the introduction of technology. CEC decided to focus on regularly sending savings balances by SMS to customers, improving the control system and authorizing transactions in proportion to the financial guarantee deposited by each agent.

• Regular training of agents (currently, once per semester for field agents) has continuously proved to be fundamental to success.

Next steps

CEC plans include the following:

1. Improvement of agent network

• Creation of Agent Supervisor positions, in charge of improving control of agents in the field (comparison of balances and training of agents and clients), in order to improve agent network management

• Introduction of fixed agents in rural areas (2017)

• Reduction in the number of brick-and-mortar branches and increase in the number of mobile and fixed agents CEC My Cash promotional flyer Courtesy of CEC Cameroon 2. Integration of Visa cards

3. Expansion of product and service offer See the following article for further reading on CEC: • Addition of loan repayment to the service offer in 2017 UNCDF, ‘MicroLead supports Digital Financial Services in Camer- • Development of bill payment (electricity, water, tuition) oon,’ 12 December 2016. Available from http://www.uncdf.org/ar- service from CEC accounts ticle/175/microlead-supports-digital-financial-services-in-cameroon HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK

Summary 24 agents, most of whom were small shop owners and also were already mobile money or over-the-counter agents in order to en- Microcred Senegal began operations in 2007. It is part of Micro- sure sufficient liquidity. Participating agents can be recognized by cred Holding, which operates in 10 countries in Africa and Asia their Baobab-brand signage. with 877 agencies and points of service. Microcred Senegal is the second largest MFI in Senegal in terms of credit portfolio Each of the 38 Microcred branches manages agents (Microcred and third in terms of savings.20 calls the agents ‘correspondents’) in its area of operations, visiting agents on a frequent basis. Microcred has implemented a mod-

el without e-money: agents perform transactions from their own With funding from the International Finance Corporation and The Microcred bank accounts. In this way, the money flows and stays MasterCard Foundation, Microcred Senegal launched an agent/ within the Microcred system. All agents have a Microcred account branchless banking pilot in 2014. The model uses a biometric plat- for the purpose of float management and are therefore known to form and allows clients to make deposits, withdrawals and ac- the MFI. In fact, agents often are Microcred clients who have de- count-to-account transfers at any of the 520-plus Microcred agent cided to become Microcred agents. locations simply by using their fingerprints. The pilot started with Since there is no e-money involved in this model, there was no need to receive authorization from BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest) to pilot this agent model.

By the end of 2016 (two years after launch), agency banking represented 30% of transactions at Microcred Senegal (the rest being performed at branches) and 45% of clients were enrolled for agency banking.

Objectives for the creation of an agent network

Microcred is a traditional MFI that started with physical branches (currently 38 branches in Senegal) and then ran into the limits of the brick-and-mortar model: high costs to open a branch, competitors with larger branch networks (e.g., Crédit Mutuel du Sénégal has more than 210 branches), mostly urban clients, and more focus on credit and not enough on savings.

To expand financial inclusion, Microcred decided to focus on the development of the digital approach and in particular on the use of mobile phones to get closer to customers, especially those located in remote areas.

Microcred chose to create a network of correspondents for these main reasons:

• Increase geographical coverage while limiting costs of new branches • Increase outreach to rural areas • Decongest branches Baobab agent Courtesy of Microcred Senegal

20 According to the Microfinance Department of Senegal, the ranking in terms of gross loan portfolio is the following: Crédit Mutuel du Sénégal, Microcred and Alliance de Credit et d’Epargne pour la Production. In terms of savings, Microcred is third behind Crédit Mutuel du Sénégal and Pamecas (2015 data). HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK

To develop its own agent network, named Baobab, Microcred All the transactions are conducted through biometric devices Holding is using a combination of the following: and laptops connected to the Microcred system. During the design phase of the model, the research and development team • Proprietary platform independent of any MNO: An Android focused on creating specific tablets with fingerprint-reading/ mobile application runs on tablets, leverages technology specific POS devices. However, Microcred finally opted for the (mobile, biometric, SMS, GPS [global positioning system], SecuGen Hamster fingerprint reader that can be connected via OCR [optical character recognition]) and focuses on user ex- USB to any computer or Android device (phone, tablet). In fact, perience (extremely intuitive user interfaces, operation of ap- the outlay required for the development of specific tablets/de- plication at low bandwidth, save-and-continue-later option). To vices would not have been appropriate in terms of investment. create its platform, Microcred collaborated with global technology company Software Group. Specifically, the web-based platform was designed and is owned by Microcred and was Baobab IT platform and main components custom developed by Software Group. Microcred dedicated Microcred Holding has a single banking software (Temenos). The three full-time designers to the project. A customer-centric internal IT platform for Baobab uses cloud services to run, secure sign-up experience is intended to create customer value that, and manage all the applications for agents, branch managers and beyond a simple customer focus, generates more sustainable clients. Specific components of the platform are activated based on business value. Account-opening is a 6-step process that lasts the country and the status of the user, whether a client or an agent. less than five minutes, made possible by the smart use of technology (see the section on account-opening in this case study for more details).

• A basic account offer, opened remotely in less than five minutes.21

Services offered and channels used

Through its Baobab agent network, Microcred offers clients the following:

• Collection of client information for account creation (account-opening is finalized at headquarters after valida- tion of information collected by agents)

• Deposits

• Cash withdrawals Baobab biometric device Courtesy of Microcred Senegal

• Cash transfers In Senegal, Microcred started with a web-browser application, • Loan repayments which used fingerprints, and mobile devices (mobile phones, • Money transfers from one account to another computers). Microcred does not provide its agents with equipment apart from the fingerprint reader. Agents use their own • Bill payments computer and their own Internet connection. The cash register • Automatic loan renewals (for clients with active loans) application is installed on their device. Everything runs on a web or Android base; there is no MNO and no USSD involved in the • Nano loans (small emergency loans that are disbursed in- process. The application only works in online mode (no offline). stantly and require a minimum amount of information)22 In addition, the institution developed a tablet application named Baobab Pulse, used for customer acquisition by loan officers. On top of that, an Android application for mobile banking was rolled out to a limited number of customers; it is not fully deployed. 21 Louis-Olivier Favot, ‘Remote sign up makes opening an account a breeze,’ 8 January 2016. Available from https://medium.com/Microcred-on-a-mission/remote-sign-up-makes-opening-an-account-a-breeze-6a48ea4c1629 22 Azalea Carisch, ‘Une réponse supplémentaire pour les besoins de nos clients : le crédit Taka, un mini-crédit à impact maximal,’ 11 January 2017. Available from https://medium.com/microcred-on-a-mission-fr/une-r%C3%A9ponse-suppl%- C3%A9mentaire-pour-les-besoins-de-nos-clients-le-cr%C3%A9dit-taka-un-mini- -cr%C3%A9dit-3382a4d3191a HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK

40 Microcred agent in Senegal Courtesy of Microcred

Agent network (traditional agents) Implementation efforts Aside from dealing with their own business, ‘traditional agents’ (called correspondents) guide customers as a host. They learn professional Implementing its own agent network required the following: sales techniques to be more efficient. Microcred devotes significant 1. Redefinition of the institution’s overall strategy attention ‘to treat their agents as partners, investing in their knowledge and equipping them with intuitive applications that empower them.‘23 2. Presentation of the project for suggestions (not approval) to supervisory authorities/regulators and later presentation of A few traditional agents are equipped with the tablet application pilot results to the same Baobab Pulse for customer acquisition in Madagascar but not in Senegal. Baobab Pulse is a mobile application that runs on tablets 3. Acquisition of a computer platform to support the new de- and was initially used by sales agents (staff dedicated to client ac- livery channel quisition only) to allow for remote opening of a secure bank account. 4. Strengthening of the centralized IT department in charge The steps are simple: of support • Meet potential customers and take their fingerprints 5. Establishment of a new department dedicated to agent net- • Create an electronic contract to open an account, a contract work management: definition of procedures, recruitment, that the customer signs on the tablet training, agent follow-up, etc.

The process takes less than five minutes and ‘provides new cli- 6. Update of risk mapping and audit process/fraud prevention ents with a positive and promising financial services experience.‘24 7. Strengthening of marketing efforts and development of a customer relationship centre

23 Microcred, ‘Microcred élargit son réseau Baobab,’ 11 September 2016. Availa- 8. Mobilization of resources and experts (consultants, techni- ble from http://www.Microcredgroup.com/fr/actualites/Microcred-elargit-son-reseau-baobab/c/64-102-484#on cal assistance from Microcred Holding, etc.) to define new 24 Microcred, ‘Microcred remporte l’award de la “meilleure banque de détail afri- adapted products for the new channel caine,”’ 11 April 2016. Available from http://www.microcredgroup.com/fr/actualites/ microcred-remporte-l-award-de-la-meilleure-banque-de-detail-africaine-/c/64-102-480 HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK

41 Baobab pulse application for loan officers Courtesy of Microcred Senegal

A new marketing strategy was also implemented: • Step 3: Customer’s mobile phone number is confirmed with an OTP (one-time password) sent via SMS, which the • Adoption of a new graphic charter to accompany the change agent checks right after it is received on the customer’s of strategy (refreshed logo, new colours, new name for the mobile phone. corresponding network [Baobab], etc.) • Step 4: Customer’s fingerprints are captured with a biomet- • Establishment of a call centre ric device. The fingerprint scans are extremely important because they allow the client to be identified and to perform • Organization of field campaigns (animation booths with cor- transactions with the Microcred agent network. respondents, caravan, etc.) • Step 5: Customer can review account contract policies and ap- • Communication by agents with clients to inform them of prove them by signing electronically with his/her fingerprints. the new account and channel • Step 6: Account is opened in real time after verification from headquarters, and customer receives a congratulatory Model in action SMS with his/her account number. To comply with regulations, the balance of the account created is capped and Account-opening restricted in terms of transaction amounts, depending on The 6-step, 5-minute (or less) account-opening process is made the channel to access funds. possible by the smart use of technology:

• Step 1: Customer takes a selfie with the agent’s tablet.

• Step 2: Agent takes a photo of the customer’s identification card. Through OCR (optical character recognition) technology, identification card information is extracted and automatically populates the customer form fields. This feature avoids manual entries and potential errors. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK

42 Application on agent tablets to register clients Courtesy of Microcred Senegal

The tablet is available for Microcred mobile agents who are dedicat- Float and liquidity management ed to opening these accounts. The accounts are immediately active. From their own computer, each agent has access to a secure platform to perform all transactions. Since it is his/her own Microcred Agent network management bank account and his/her own money, the agent manages float All Baobab agents are recruited and monitored by Microcred on his/her own, performing transactions from his/her account to branches. The Baobab agents are recruited according to several client accounts. Agents have no information on the transaction criteria, such as their experience, location, and technical and fi- flow or volume to expect. nancial capacities. They sign an automatically renewable contract with Microcred for a period of one year and open a Microcred account. Each agent receives marketing materials for their shop and a biometric device. Then the agent receives training to use the Baobab platform.

To date, Microcred Holding has more than 500 agents and 30 people dedicated to agent network management (both Agent Supervisors and Area Managers). Agent Supervisors are focused solely on the recruitment, training, technical assistance and support of their agents. They are attached to a Microcred branch, and their number varies depending on the type of branch and the type of agents. There are currently 25 Agent Supervisors. At the regional level, five Area Managers supervise and support the Agent Supervisors. Their role is to ensure that all the rules and processes are well followed throughout the network. Moreover, a call centre is available for all agents in case they cannot reach their Supervisors/Managers. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK

43 Results achieved and cost/benefit analysis CapEx The main investment costs at the start related to IT, human re- Agency banking was quickly adopted by Microcred customers. sources and technical assistance. Microcred received US$12 Yet, after two to three years, it reached a threshold and Micro- million from The MasterCard Foundation for three of its subsid- cred felt the need to add new products to the new channel (it iaries to implement digital finance. started only with deposits and withdrawals). Table 13 lists the investments Microcred Holding has made in A partnership with The MasterCard Foundation allowed Micro- terms of CapEx for agency banking in Senegal. So far, Microcred cred to develop new digital products including bill payments, au- Holding has launched agency banking with its subsidiaries in tomatic loan renewals, nano loans, ‘account to cash’ and ‘pay as Senegal and Madagascar, so its investment is benefiting these you go’ for solar lamps. These Baobab products increased the countries for the time being. However, the hope is that these monthly number of transactions per agent and thereby improved investments can be leveraged for the other eight subsidiaries of the viability of the network. Microcred in Africa and Asia to achieve lower costs.

Table 13: CapEx costs for Microcred Senegal

ITEM 2014 2015 2016 2017

Channel development, incl. technology 293 811 668 876 793 451 696 888 717 661 204 656 (CFAF) (US$596 438) (US$1 481 781) (US$1 177 742) (US$1 077 764) 349 775 951 1 043 801 416 829 629 487 787 148 400 Product development, incl. technology (CFAF) (US$710 045) (US$1 764 024) (US$1 402 074) (US$1 283 052) 617 937 076 1 844 049 933 1 465 678 848 1 267 709 058 Institution transformation and training (CFAF) (US$1 254 412) (US$3 116 444) (US$2 476 997) (US$2 066 366) 784 889 940 2 342 271 577 1 961 502 969 1 978 132 791 Customer service development (CFAF) (US$1 593 327) (US$3 958 439) (US$3 314 940) (US$3 224 356) Programme management, evaluation and 233 183 530 433 485 248 290 703 743 344 377 425 monitoring (CFAF) (US$473 363) (US$732 590) (US$491 289) (US$561 335) 2 279 598 165 6 802 784 424 5 506 786 565 5 382 949 755 TOTAL (CFAF) (US$4 627 584) (US$11 496 706) (US$9 306 469) (US$8 774 208)

Conversion rates: CapEx amounts were originally provided in Euros, which were converted to CFA francs using the fixed conversion rate of 1= CFAF 655.957 for 2014–2017 (Source: www.xe.com). Once converted to CFA francs, United States dollar equivalents were provided using the average conversion rate for each relevant year: CFAF 1 = US$0.00203 for 2014, CFAF 1 = US$0.00169 for 2015 and 2016, and CFAF 1 = US$0.00163 for 2017 (Source: www.oanda.com).

OpEx Revenues Annual recurring costs (marketing, human resources, agent Revenues for Microcred come from fees that clients have to pay commissions) amounted to the following: on transactions performed through agents. Cash-in and cash-out were initially subsidized by Microcred to entice clients to adopt • 2014: CFAF 1.3 billion (US$2.2 million) the system; however, to achieve profitability and sustainability, • 2015: CFAF 1.0 billion (US$1.7 million) Microcred changed its policy in 2016 and now charges customers. The amount was based on cost of transportation and esti- Commissions to agents represent 25% of recurring costs. To mated time that customers spent to previously visit a branch make the value proposition attractive to agents in a competitive instead of an agent to perform a transaction. This change initially market like Senegal, where there are many over-the-counter ser- resulted in a drop in the number of customers. vices, Microcred decided to pay generous commissions to agents. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK

44 Breakeven Challenges and lessons learned Microcred Senegal has not yet reached breakeven. The investment was made by Microcred Holding as a whole, considering Building and running the agent network was not the most dif- that it would benefit other subsidiaries in the mid- to long-term. ficult task for Microcred as it relied on an existing network of branches to supervise agents. However, there were a few ob- stacles that Microcred had to overcome: Key success factors • Building and adapting a sustainable business model: In The following factors were identified as contributors to the suc- the words of a Microcred official, ‘You cannot and you must cess of Microcred Senegal in developing its own agent network: not launch a network of correspondents without real business value for both the institution and the agents. In fact, 1. Strong existing MFI with resources to handle the change wishing to decongest branches is not enough’.26 • Microcred Senegal had a strong market presence and brand image prior to starting the agent network. • Timing: Microcred took too much time between (a) the • Microcred Senegal had strong operations, skilled staff launch of the agent network with a value proposition for and mastery of the microfinance business prior to start- customer acquisition and (b) the launch of a product and ing the agent network. service offering that generated increased traffic and repeat- ed usage/engagement (to make the ecosystem dynamic, • As the Head of the Project Management Office at attractive and financially viable). Microcred said, ‘We had a strong & robust MFI on all aspects, reaching a market threshold, and needed the • Staying focused on its core business: In Senegal, compe- agent network to grow further. It could not have been tition is stiff for bill payments and cash transfers (there are al- possible if we had faced any operational/financial/risk ready many successful players involved, including Wari that problem. Significant change in operations cannot be is the clear market leader). The differentiating value added by made if the institution is weak because it can ruin the Microcred is credit expertise. The institution is currently work- trust of customers and the institution’.25 ing on the development of an automated nano-loan offer to create a competitive advantage, leveraging its core strengths. 2. Strong support from Microcred Holding and internaliza- tion of capabilities • Microcred Senegal benefited from support by Micro- Next steps cred Holding and teams at the Holding level. For ex- Microcred Senegal is not the only Microcred subsidiary that devel- ample, the internal team for innovation and technology oped its own agent network: Microcred Madagascar also devel- grew from 4 to 80+ staff in five years. oped a network of correspondents, mostly for loan repayments. • Microcred Senegal benefited from centralized compe- Agents are not in charge of savings mobilization. The model is cur- tencies (i.e., IT, IT platform, information system). At rently experiencing challenges as a new regulation now prevents Microcred, anything designed/piloted locally in a sub- banks from managing their own agents. In addition, Microcred is sidiary benefits the whole group and is to be replicated about to launch agency banking in Côte d’Ivoire. in all subsidiaries. Apart from the geographical expansion of its agency banking model 3. Dedicated risk management team as well as strong in- to other subsidiaries, Microcred plans to do the following: ternal control processes and audit 1. Continue to automate processes to reduce costs and espe- Microcred also had the opportunity to benefit from a partnership cially to reduce processing times in order to improve cus- with The MasterCard Foundation and funding from the Interna- tomer satisfaction: tional Finance Corporation, which facilitated implementation of this business model. • Customer acquisition with Pulse application • Electronic credit file dematerialization • Mobile tracking application • Automated credit scoring, which is already available for nano loans and loan renewals

25 Yoann Guirimand, Head of Project Management Office, Microcred Holding, personal communication with author, 10 May 2017. 26 Ibid. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK CASE STUDY OF MICROCRED IN SENEGAL—CREATING ITS OWN AGENT NETWORK

45 The first three elements involve continuous improvement • Percentage of transactions cash-in, remaining is cash-out and therefore imply strong research and development. (monthly average): 71% • Percentage of transactions at agents, remaining is at branches 2. Focus on the development of products and services with (monthly average): 29% ‘differentiating’ value for Microcred • Percentage of Microcred clients enrolled for agency banking: 45% • No priority on payments and transfers in a market that • Number of deposit accounts (year-end): 307,982 is already extremely competitive like Senegal • Volume of savings (year-end): CFAF 30 billion (US$51 million) • Further development of the offer of (automated) credit and savings, which are Microcred strengths, particularly auto- Sources mated credit scoring with third-party partners (websites, data aggregators, etc.), new credit offers, and specific sav- )) Carisch, Azalea. Une réponse supplémentaire pour les besoins ings (group, rural) by taking advantage of scoring technology de nos clients : le crédit Taka, un mini-crédit à impact maximal, 11 January 2017. Available from https://medium.com/Microcred- 3. Expand the network in Senegal, especially via dedicated corre- on-a-mission-fr/une-r%C3%A9ponse-suppl%C3%A9mentaire- spondents, and deploy it in the other Microcred Holding countries pour-les-besoins-de-nos-clients-le-cr%C3%A9dit-taka-un-mini- cr%C3%A9dit-3382a4d3191a

Key figures on Microcred Senegal )) ——.Microcred is Supercharging its Loan Officers (and (April 2017)27 Productivity) with the Baobab Portfolio app, 22 December 2016. Available from https://www.linkedin.com/pulse/microcred- • Date of launch: September 2007 supercharging-its-loan-officers-baobab-app-azalea-carisch

28 • Gross loan portfolio: CFAF 62 billion (US$105 million) )) Carisch, Azalea with Louis Bidou. Microcred stimule ses • Deposits: CFAF 39 billion (US$66 million) gestionnaires de portefeuille (et sa productivité) avec l’appli Baobab Portefeuille, 21 December 2016. Available from https:// • Number of clients: 230,834 medium.com/Microcred-on-a-mission-fr/Microcred-stimule-ses- • Number of active loans: 49,216 gestionnaires-de-portefeuille-et-sa-productivit%C3%A9-avec-lappli- • Number of branches and outlets: 40 baobab-89d1ec847f03

• Number of agents: 520+ )) Favot, Louis-Olivier. Remote sign up makes opening an account • Number of employees (year-end): 667 a breeze, 8 January 2016. Available from https://medium.com/ Microcred-on-a-mission/remote-sign-up-makes-opening-an- Results achieved though technology in account-a-breeze-6a48ea4c1629 Senegal (2016)29 )) Microcred. Microcred élargit son réseau Baobab, 11 September 2016. Available from http://www.microcredgroup.com/fr/ • Number of customers (year-end): 215,459 actualites/microcred-elargit-son-reseau-baobab/c/64-102-484#on • Number of loan disbursements (monthly average): 57,681 )) ——.Microcred mise sur la technologie pour assurer l’excellence • Volume of active loans (monthly average): CFAF 79 billion de ses services, 25 March 2016. Available from http://www. (US$134 million) microcredgroup.com/fr/actualites/Microcred-mise-sur-la- • Number of loan defaults (write-off): 1,239 technologie-pour-assurer-l-excellence-de-ses-services/c/64-102- 387#on • Average portfolio at risk ratio (portfolio at risk greater than 30 days/outstanding portfolio): 1.07% )) ——.Microcred remporte l’award de la «meilleure banque de • Number of agents (year-end): 540 détail africaine,» 11 April 2016. Available from http://www. microcredgroup.com/fr/actualites/microcred-remporte-l-award-de- • Number of Baobab accounts opened in the field through Pulse la-meilleure-banque-de-detail-africaine-/c/64-102-480 (year-end): 14,721 )) ——.Ouverture d’un compte Baobab sur le terrain, 10 June 2016. Available from http://www.microcredgroup.com/fr/actualites/ ouverture-d-un-compte-baobab-sur-le-terrain/c/64-102-416#on

27 Ibid. 28 Conversion rate: CFAF 1 = US$0.00169 (Source: www.oanda.com, average rate for 2016). Note: This same rate was used for the following bullets regarding key figures and results: Deposits, Volume of active loans and Volume of savings. 29 Data provided by Microcred HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

ANNEX I: MALAWIAN CONTEXT

Financial inclusion Figure I.II: Market share of mobile network operators, 2015 (% of subscribers) According to a 2014 FinScope customer survey,30 financial inclusion in Malawi is low, with almost one out of two people not using any financial product/service to manage their financial life. Yet, the situation is slowly improving, with 54% of people now having access to some sort of financial service (compared to Airtel 55.9% 31 45% in 2008), including 40% formally served. People tend to TNM 43.7% 43.7% 55.9% use a combination of services (banking services, informal ser- MTL 0.3% vices like burial societies, other formal [non-bank] services) to ACL 0% meet their financial needs (see figure I.I).

These financial services are provided by a wide range of FIs: banks, regulated under the Banking Act (1989) and supervised by RBM; non-bank MFIs, under several legal forms and ownership structures; Acronyms: ACL, Access Communications Limited; MTL, Malawi Telecommunica- member-owned or member-based organizations, such as financial co- tions Limited; TNM, Telekom Networks Malawi operatives or savings and credit cooperatives; and, informal financial Source: Malawi, National Statistical Office/Malawi Communications Regulatory service providers, including individual moneylenders (e.g., Katapila). Authority, Survey on Access and Usage of ICT Services in Malawi (Kampala, 2014).

Figure I.I: Financial inclusion countrywide, 2014 (% of those aged 18+) Digital financial service initiatives

Mobile money in Malawi was launched in early 2012. Both the 46 40 mobile money market and the regulatory environment for that 50 33 market have rapidly undergone considerable development.34 Six 40 28 24 MNOs are involved in mobile money (see figure I.III), although 30 the market is largely dominated by Airtel Money and Telekom 20 Networks Malawi Mpamba. 10 0 About 20% of the population is aware of mobile money,35 but Formally served just under 8% actually use it.36 Digital financial service oppor- Banked tunities in Malawi include government-to-person payments and Formally served through non-banks merchant payments via mobile money and debit card at POS. Informally served Excluded

Source: FinScope Malawi, ‘FinScope Consumer Survey 2014’ (Johannesburg, FinMark Trust, 2014).

Telecom sector

Mobile phone access is at 56%, although only 36% of the population owns a mobile phone32 (see figure I.II for more on MNOs in the country). There is an urban-rural bias in mobile phone ownership with 71% of those living in a city owning a mobile, compared to only 29% of those living in a rural area, while almost 40% of Malawians have multiple SIM cards.33

30 FinScope Malawi, ‘FinScope Consumer Survey 2014’ (Johannesburg, FinMark Trust, 2014). 34 Jonathan Greenacre, Louise Malady and Ross Buckley, The Regulation of 31 Ibid. Mobile Money in Malawi: Project Report (n.p., UNCDF, March 2014). 32 Malawi, National Statistical Office/Malawi Communications Regulatory Autho- 35 FinScope Malawi, ‘FinScope Consumer Survey 2014.’ rity, Survey on Access and Usage of ICT Services in Malawi (Kampala, 2014). 36 Malawi, National Statistical Office/Malawi Communications Regulatory Autho- 33 Ibid. rity, Survey on Access and Usage of ICT Services in Malawi. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK

ANNEX I: MALAWIAN CONTEXT (CONTINUED)

Figure I.III: Mobile network operators and mobile money Regulation of mobile financial services product usage E-Money Regulations (2014) replaced the existing Guidelines for Mobile Payment Systems (2011). These regulations govern all Market share by MNOs digital payment operations, including requirements for entities Airtel Money 62.2% involved in the issuing and storing of funds and operating the TNM Mpamba 31.1% payment systems for transferring e-money. Mo626 3.3% As per regulation, no agent exclusivity is permitted. However, in FMB Mobile 0.2% medium and small trading centres and villages, it is difficult to NBS Mobile 1.4% find many enterprises with sufficient liquidity to become agents. % Mobile money product usage In this scenario, MNOs and banks must target the same one or OIBM Mobile 1.6% two enterprises as their agent(s). Airtime top-up 64.8% Salary payment 3.5% MALAWI Bill payment 4.4% Receipt of payment/remittance 27.3%

Acronyms: FMB, First Merchant Bank; OIBM, Opportunity International Bank Malawi; TNM, Telekom Networks Malawi

Source: Malawi, National Statistical Office/Malawi Communications Regulatory Authority, Survey on Access and Usage of ICT Services in Malawi, pp. 12 and 14 (Kampala, 2014). HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK CASE STUDY #4: DEVELOP OWN AGENT NETWORK

48 ABOUT MICROLEAD

MicroLead, a UNCDF global initiative which challenges financial service providers to develop, pilot and scale deposit services for low income, rural populations, particularly women, was initiated in 2008 with support from the Bill & Melinda Gates Foundation and expanded in 2011 with support from The MasterCard Foundation and LIFT Myanmar. It contributes to the UN’s Sustainable Development Goals, particularly SDG 1 (end poverty), SDG 2 (end hunger, achieve food security and promote sustainable agriculture) and SDG 5 (achieve gender equality and economic empowerment of women), as well as the Addis-Abeba Financing for Development Agenda (domestic resource mobilization).

MicroLead works with a variety of FSPs and Technical Service Providers (TSPs) to reach into previously untapped rural markets with demand-driven, responsibly priced products offered via alternative delivery channels such as rural agents, mobile phones, roving agents, point of sales devices and informal group linkages. The products are offered in conjunction with financial education so that customers not only have access but actually use quality services.

With a specific emphasis on savings, women, rural markets, and technology, MicroLead is a performance-based programme that supports partnerships which build the capacity of financial institutions to pilot and roll out sustainable financial services, particularly savings. As UNCDF rolls out the next phase of MicroLead, it will continue to focus on facilitating innovative partnerships that encourage FSPs to reach into rural remote populations, build on existing digital financial infrastructure and emphasize customer- centric product design.

For more information, please visit www.uncdf.org/microlead. Follow UNCDF MicroLead on Twitter at @UNCDFMicroLead.

ABOUT PHB ACADEMY

PHB Academy provides training and coaching aimed at improving financial inclusion. We focus on increasing the take-up and usage of digital financial services (DFS). PHB Academy offers training and coaching face-to-face and online, as well as in blended format (a mix of face-to-face and e-learning). Workshops and programmes can be custom-designed and tailored to our clients’ specific needs. The design of our programmes is based on the latest insights in adult learning and executive coaching. We change behaviour by doing more than just transferring technical knowledge. We focus on the development of the practical skills and positive attitudes that managers and field staff need to design, manage and deliver DFS in a sustainable manner. Experiential learning methods and a focus on self-management are key to our success. Our offer is available to financial institutions, mobile network operators, remittances & payment providers and development agencies that pursue financial inclusion through innovative delivery channels.

PHB Academy is the Training & Development Practice of PHB Development, a specialist consulting firm with operations across the world. Since 2006, PHB Development has been committed to increasing financial inclusion in underserved markets. PHB has helped its clients develop viable financial services and delivery channels throughout more than 100 projects.

For more information, please visit http://phbdevelopment.com/. Follow PHB at @PHBDevelopment on Twitter. HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK CASE STUDY #4: DEVELOP OWN AGENT NETWORK

ABOUT UNCDF 49

UNCDF is the UN’s capital investment agency for the world’s 48 least developed countries. With its capital mandate and instru- ments, UNCDF offers “last mile” finance models that unlock public and private resources, especially at the domestic level, to reduce poverty and support local economic development. UNCDF’s financing models work through two channels: financial inclusion that expands the opportunities for individuals, households, and small businesses to participate in the local economy, providing them with the tools they need to climb out of poverty and manage their financial lives; and by showing how localized investments — through fiscal decentralization, innovative municipal finance, and structured project finance — can drive public and private funding that under- pins local economic expansion and sustainable development. By strengthening how finance works for poor people at the household, small enterprise, and local infrastructure levels, UNCDF contributes to SDG1 on eradicating poverty and SDG 17 on the means of implementation. By identifying those market segments where innovative financing models can have transformational impact in helping to reach the last mile and address exclusion and inequalities of access, UNCDF contributes to a number of different SDGs.

For more information, please visit www.uncdf.org and sign up for our Newsletter at http://uncdf.org/en/content/subscribe-our-newsletter. Follow UNCDF at @UNCDF on Twitter and Facebook.

ABOUT THE MASTERCARD FOUNDATION

The MasterCard Foundation works with visionary organizations to provide greater access to education, skills training and financial services for people living in poverty, primarily in Africa. As one of the largest private foundations its work is guided by its mission to advance learning and promote financial inclusion to create an inclusive and equitable world. Based in Toronto, Canada, its indepen- dence was established by MasterCard when the Foundation was created in 2006.

For more information and to sign up for the Foundation’s newsletter, please visit www.mastercardfdn.org. Follow the Foundation at @MastercardFdn on Twitter.

Contact details:

Project Sponsors Project management and content

Pamela Eser Hermann Messan UNCDF – MicroLead UNCDF – MicroLead [email protected] [email protected]

Philippe Breul Aurélie Wildt Dagneaux PHB Development PHB Development [email protected] [email protected] HOW TO SUCCEED IN YOUR DIGITAL JOURNEY: A SERIES OF TOOLKITS FOR FINANCIAL SERVICE PROVIDERS CASE STUDY #4: DEVELOP OWN AGENT NETWORK